In Fannie Mae’s SEL 2014-14 and Freddie Mac’s Bulletin 2014-21, both issued on November 20, 2014, the GSEs have announced policy changes in their Representation & Warrant relief framework that is welcome news to the mortgage lending industry. These changes will give better clarity and transparency to lenders relative to the GSEs Representations & Warranties enforcement policies.
One specific example of how these revised policies will be applied towards an appraisal review is as follows:
When one of the GSEs performs a loan file review for quality assurance and/or audit purposes and that loan has obtained relief under the Rep & Warrant Framework and a determination is made that the property value used to calculate the Loan-to-Value (LTV) ratio was incorrect at the time of delivery – a repurchase request will NOT be issued if based solely on the fact that the newly calculated LTV ratio is over 80% – provided that none of the life of loan exclusions is evident. In the past, lenders have complained that they would receive repurchase requests for incorrect values based on reviews that were performed several months after the loan closed and the accuracy of such reviews were questionable and debatable.
The bottom line is that lenders should have more of a comfort level when originating a loan in light of this new GSE Rep & Warrant Framework which will ultimately help provide more borrowers with access to credit.
On another positive note – HUD/FHA has recently released a draft “Loan Quality Assessment Methodology” document that outlines proposed changes to the way that Agency identifies and enforces loan defects with the intent for more transparency in its post endorsement technical review process.
Now – let’s see how these new policies will be enforced. Stay tuned!