FHFA talks of relaxing reps and warranties to help lenders get a better comfort level on potential for repurchases and indemnifications (Read MBA Newslink story). In the words of Mel Watt, new director of FHFA, the hope is that these changes will facilitate market liquidity without compromising the safety and soundness of the [Agencies]. It may do so for the Agencies but what about the lenders.
We’ve been down this road before but when the spit hit the spam the Agencies looked for every little nuance in a loan to affect a demand for a loan repurchase or indemnification from loss. Take heed – under the new relaxed rules, a lender is still responsible for 6 exclusions to the rep and warranty waivers (See Story). However, if a lender follows the rules they could receive a life of loan exclusion from repurchase or indemnification; loan quality, data integrity and accuracy, and documentation become paramount.
In addition to the life of loan rep and warranty exclusions, FHFA also announced a new 97% LTV product. This is aimed at getting more consumers access to home financing. Details on credit and quality underwriting are to follow. Didn’t we go down this road before? Is 3% skin in the game enough to deter a consumer from default? Is it wise to lower the lending standards because someone believes a segment of the population is not getting adequate access to credit; or should it be that segment shouldn’t own a home in the first place? Tough choices; tougher decisions.
Hopefully we’re not doomed to repeat history…