New Lender Selling Representations and Warranties Framework

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MBS News and Announcements

New Lender Selling Representations and Warranties Framework

This MBS Investor Announcement is a summary of Selling Guide Announcement SEL-2012-08. Please refer to the Selling Guide Announcement for further information.

Today, in conjunction with our conservator the Federal Housing Finance Agency (FHFA), and Freddie Mac, Fannie Mae announced a new representations and warranties framework. This framework applies to conventional mortgage loans that are acquired by Fannie Mae on a flow basis on or after January 1, 2013 or delivered into MBS with issue dates of January 1, 2013 or later.

What's changed?

In adopting this new framework, Fannie Mae and Freddie Mac (the GSEs) are not modifying the representations and warranties currently in effect, nor are they discharging a lender from the responsibility for underwriting and delivering quality loans in accordance with the acquiring GSE’s requirements. 

Instead, the new framework will provide a lender with relief from its obligation to remedy mortgage loans that are in breach of certain underwriting and eligibility representations and warranties for conventional loans that are acquired by Fannie Mae on a flow basis on or after January 1, 2013 if the borrower meets specified payment history requirements and other eligibility criteria described under "What mortgage loans are eligible for the new framework?" below. No relief will be available for breaches of certain “life of loan” representations and warranties, regardless of the borrower's payment history.

As a result of the relief provided by the new framework, Fannie Mae will initiate changes in the quality control process used with lenders. In the future, lenders can expect an overall increase in the focus on reviewing performing loans selected prior to the 12- or 36-month sunset described under "What mortgage loans are eligible for the new framework?" below. When Fannie Mae reviews a mortgage loan file, it will evaluate the file with the primary focus of confirming that the mortgage loan meets underwriting and eligibility requirements. In addition to selecting a random sample of new mortgage loan deliveries for review as it does today, Fannie Mae will employ a number of technology tools and internal models to identify earlier in the post-acquisition review process mortgage loans that may not meet Fannie Mae requirements and issues that may affect loan underwriting quality. If Fannie Mae determines that a mortgage loan failed to meet underwriting requirements or is otherwise ineligible, Fannie Mae may issue a repurchase request or pursue another remedy. Please reference Lender Letter LL-2012-05 published today for further details.

Note: Fannie Mae may be subject to third-party claims, including, but not limited to, those made by or on behalf of borrowers or MBS investors.  Notwithstanding the relief provided by the framework described in this Announcement, the lender's indemnification obligations with respect to third-party claims continue in full force and effect.  See the Selling Guide, A2-1-03, Indemnification for Losses, for a description of the indemnification obligations which continue.

Why now?

The GSEs, under the FHFA, have begun to lay the foundation for a better approach to working with seller/servicers (referred to lenders) to deliver loans that meet Fannie Mae's underwriting and eligibility requirements through the Uniform Mortgage Data Program® ( UMDP). Designed for the electronic collection of accurate, consistent, and high-quality loan and appraisal data, the UMDP helps Fannie Mae to focus on the eligibility of mortgage loans earlier in the post-acquisition review process.

What mortgage loans are eligible for the new framework?

To be eligible for the new representation and warranty framework, a mortgage loan must meet the following requirements:

A. The mortgage loan must have a January 1, 2013 or later acquisition date:

  • whole loans purchased on or after January 1, 2013, or
  • mortgage loans delivered into MBS with issue dates of January 1, 2013 or later.

B. The mortgage loan must meet one of the following payment history requirements:

  • The borrower was not 30 days delinquent during the 36 months following the acquisition date, or for Refi Plus and DU Refi Plus mortgage loans, the borrower was not 30 days delinquent during the 12 months following the acquisition date; or
  • The borrower (i) had no more than two 30-day delinquencies and no 60-day or greater delinquencies, during the 36 months following the acquisition date; and (ii) was current as of the 60th month following the acquisition date.

With the exception of mortgage loans with temporary buydowns, neither the lender nor a third party with a financial interest in the performance of the loan (e.g., mortgage broker, correspondent lender, mortgage insurer) can escrow or advance funds on behalf of the borrower to be used for payment of any principal or, interest, or other charges payable under the terms of the mortgage loan for the purpose of satisfying the payment history requirement.

C. The mortgage loan must be a conventional mortgage loan (including Refi Plus and DU Refi Plus loans) sold to Fannie Mae on a flow basis.

  • Government-guaranteed or –insured loans are not eligible for inclusion under the framework.
  • Non-flow, seasoned, or bulk mortgages may be eligible for inclusion under the framework only on a negotiated basis.

D. The mortgage loan cannot have been sold to Fannie Mae with any credit enhancement other than traditional primary mortgage insurance (i.e., lender- or borrower-paid mortgage insurance). 

  • Mortgage loans with credit enhancement other than traditional primary mortgage insurance may be eligible for inclusion under the framework only on a negotiated basis.

E. The mortgage loan cannot have been subject to a forbearance agreement, repayment plan, or otherwise have been modified from its original terms during the applicable qualifying pay history period referenced in item B above.

F. With the exception of certain loans purchased under the terms of a long-term standby purchase commitment, the loans cannot have had any delinquencies between the origination date and the Fannie Mae acquisition date.

G. The mortgage loan must not be subject to an outstanding request for repurchase, repurchase alternative, or make whole payment.  

Note: Unless otherwise agreed to by Fannie Mae and the lender, once a mortgage loan has qualified for the new representation and warranty framework by compliance with the requirements A through G above, its eligibility for the new framework is final and irrevocable subject to the life of loan exclusions.

Automatic Repurchase Trigger

For new loan acquisitions commencing in 2013: Any mortgage loan for which no full monthly payment is made for the first three months after acquisition by Fannie Mae will be subject to an automatic repurchase request. However, the lender may request an exception to the automatic repurchase requirement if there were unforeseen extenuating circumstances that caused the borrower to default after the loan was acquired by Fannie Mae. Fannie Mae in its sole discretion may agree to rescind the repurchase request after a loan file review to determine that the loan otherwise meets Fannie Mae’s requirements.  

Exclusions – Life of Loan Representation and Warranties

Lenders will be subject to enforcement of breaches of representations and warranties on any mortgage loan, including eligible mortgage loans, with respect to the following matters:

  • Fannie Mae Charter Matters;
  • Misstatements, Misrepresentations, Omissions, and Data Inaccuracies;
  • Clear Title/First-Lien Enforceability;
  • Compliance with Laws and Responsible Lending Practices; and
  • Single-Family Mortgage Product Eligibility.

Additional Materials

Investors may contact Fannie Mae's Fixed-Income Securities Marketing Help Line at 1-800-237-8627 with any questions.

Originally published: 09/11/12