Lenders Comfortable with New Reps and Warranty Process, Concerned About Quality Control Reviews

by devteam May 29th, 2013 | Share

Fannie Mae recently canvased a few ofrnits lenders to gather reactions to the new representation and warrantyrnframework it recently put into operation.  Karen Nielsen, writing on the Fannie Mae’s Housing Industry Forum reports that, on the whole, thernresponse has been positive. </p

Nielsen said that the biggest concern</bexpressed by those lenders contacted was no longer with the framework – about whichrnmany apparently had a lot of early trepidation, but about what will happen whenrnFannie Mae steps up quality control reviews. rnThe new framework, under which lenders have been delivering loans sincernJanuary 1, releases lenders from most liabilities after 36 months of consecutivernon-time payments have been made or 12 months in the case of refinances donernthrough the Home Affordable Refinance Program (HARP).  </p

She reported quotes from lenders to therneffect that they appreciate the shortened exposure to buy-backs or repurchasesrnfollowing the changes rather than having to anticipate getting repurchasernrequests under the old rules on loans made years earlier.  </p

Some viewed that more limited exposure as a quid prornquo, with one saying that Fannie Mae is rewarding lenders for improving their checksrnand balances from a technical aspect upfront.   Margaret Sullivan, senior vice president for CreditrnPortfolio Strategy at Fannie Mae seemed to confirm this, telling Nielsen, “Lendersrnwanted more certainty about rep and warranty. rnThey want to know sooner if there is a liability, and Fannie Maernmanagement wants to make sure we know the quality of loans in our book.”</p

One lender questioned whether the threernyear sunset on well performing loans means that Fannie Mae will never come backrnto them and consequently the lender will no longer have to provide reserves forrnthat off-balance sheet exposure.</p

Sullivan said that Fannie Mae doesrnnot advise lenders on their loss reserves but noted that that the three-year<bsunset is real and the only exceptions relate to lifetime exclusions clearly definedrnin the company’s Selling Guide. </p

Nielsen say what has lenders’rnattention is Fannie Mae’s stated its intention to request more files forrnreview and a wider sampling of performing loans, usually in the first fewrnmonths after loan purchase. Sullivan said larger lenders are familiar with regularrnfile requests, which find errors in about 3 percent of newly acquired loansrnsubmitted for review, but somernsmaller lenders have never received a file request may need to brush up on thernguidelines. If help is needed Fannie Mae has resources available to helprnlenders train staff on how to properly underwrite loans for sale to the company.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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