Update on Lender Selling Representations and Warranties Framework

PrintEmail
MBS News and Announcements

Update on Lender Selling Representations and Warranties Framework

On May 12, 2014 Fannie Mae, jointly with Freddie Mac and at the direction of the Federal Housing Finance Agency (FHFA), announced a number of updates to the representations and warranties framework introduced in Announcement SEL-2012-08. Fannie Mae Selling Guide Announcement SEL-2014-05 describes these updates, which will be applicable to:

  • whole loans purchased by Fannie Mae on or after July 1, 2014; and
  • mortgage loans delivered into Fannie Mae MBS with issue dates on or after July 1, 2014.

The changes include two alternative paths for eligible mortgage loans to obtain relief from selling representations and warranties:

1)     the mortgage must demonstrate an acceptable payment history, based on the requirements which have been relaxed as described below, or

2)     satisfactory conclusion of a quality control loan file review of the mortgage

The updates announced to the representations and warranties framework are applicable to underwriting representations and warranties. Certain representations and warranties described in Announcement SEL-2012-08 as “life of loan” representations and warranties remain in effect until such mortgage is paid in full.

Acceptable Payment History

For mortgage loans other than Fannie Mae Refi Plus™ and DU Refi Plus™ loans, if the relief is based on the borrower’s acceptable payment history, the relief will occur upon payment by the borrower of the first 36 monthly payments due following the mortgage loan acquisition date, provided that the borrower:

  • had no more than two 30-day delinquencies;
  • had no 60-day or greater delinquencies; and
  • is not 30 or more days delinquent with respect to the 36th monthly payment.

For Fannie Mae Refi Plus and DU Refi Plus mortgage loans, relief is based on the earlier of:

  • payment by the borrower of the first 12 monthly payments due following the mortgage loan acquisition date, provided the borrower had no 30-day or greater delinquencies; or
  • payment by the borrower of the first 36 monthly payments due following the mortgage loan acquisition date, provided the borrower
    • had no more than two 30-day delinquencies;
    • had no 60-day or greater delinquencies, and
    • is not 30 or more days delinquent with respect to the 36th monthly payment.

Quality Control Review

The requirements for obtaining relief after a satisfactory conclusion of a quality control review apply both to performing loans and non-performing loans, meaning that lenders may obtain relief through the quality control path regardless of whether the mortgage loan had an acceptable payment history. If the relief is based on a quality control review, the relief will occur when one of the following takes place:

  • Fannie Mae completes the quality control review of the loan file and determines that the mortgage is acceptable (that is, it is not subject to a repurchase request).
  • Fannie Mae completes the quality control loan file review and determines the mortgage is not acceptable because of a selling deficiency that the Selling Guide or Servicing Guide specifically identifies may be cured, and the lender corrects the deficiency to Fannie Mae’s satisfaction in the time frame and manner specified in the Selling Guide or Servicing Guide. In this case, relief will be effective upon the satisfactory correction of the deficiency.
  • Fannie Mae completes the quality control loan file review and determines the mortgage is not acceptable but may be eligible for a repurchase alternative which expires or terminates by its terms. In this case, relief will be effective upon the satisfactory expiration or termination of the alternative to repurchase.

Please see the table below for a comparison of the updated selling representations and warranties framework to the version released in 2012. The table contains comparisons for both Mortgage Loans other than Refi Plus and DU Refi Plus, as well as Refi Plus and DU Refi Plus.

Representations and Warranties Framework –

Mortgage Loans other than Refi Plus and DU Refi Plus Mortgages

Relief Criteria

 

Version 1

(SEL-2012-08, New Lender Selling Representations and Warranties Framework)

Version 2

(SEL-2014-05, Lender Selling Representations and Warranties Framework Updates)

Effective dates

 

  • Whole loans purchased on and after January 1, 2013, but before July 1, 2014; and
  • Mortgage loans delivered into MBS with pool dates on and after January 1, 2013, but before July 1, 2014.

 

  • Whole loans purchased on and after July 1, 2014; and
  • Mortgage loans delivered into MBS with pool dates on and after July 1, 2014.

 

Number of required consecutive monthly payments

36

36

Number of delinquencies permitted during first 36 monthly payments after Fannie Mae acquisition in order to be eligible for relief after the 36th monthly payment

0 x 30

2 x 30 and 36th monthly payment is not delinquent

Opportunity to re-establish acceptable payment history if there were delinquencies in the first 36 monthly payments after Fannie Mae acquisition?

Yes, as of the 60th monthly payment, provided no more than 2 x 30 delinquencies in first 36 monthly payments and 60th monthly payment is not delinquent

Not applicable

Eligible for relief after satisfactory conclusion of quality control review?

No

Yes

 

Representations and Warranties Framework –

Refi Plus and DU Refi Plus Mortgages

Relief Criteria

Refi Plus and DU Refi Plus Mortgages

Version 1

(SEL-2012-08, New Lender

 Selling Representations and

Warranties Framework)

Version 2

(SEL-2014-05, Lender

 Selling Representations

 and Warranties Framework

Updates)

Effective dates

  • Whole loans purchased on and after January 1, 2013, but before July 1, 2014; and
  • Mortgage loans delivered into MBS with pool dates on and after January 1, 2013, but before July 1, 2014.

 

  • Whole loans purchased on and after July 1, 2014; and
  • Mortgage loans delivered into MBS with pool dates on and after July 1, 2014.

 

Number of required consecutive monthly payments

12

12

Number of delinquencies permitted during first 12 monthly payments after Fannie Mae acquisition to be eligible for relief after the 12th monthly payment

0 x 30

0 x 30

Opportunity to re-establish acceptable payment history if there were delinquencies in the first 12 monthly payments after Fannie Mae acquisition?

Yes, as of the 60th monthly payment, provided no more than 2 x 30 delinquencies in first 36 monthly payments and 60th monthly payment is not delinquent

Yes, as of the 36th monthly payment, provided no more than 2 x 30 delinquencies in first 36 monthly payments and 36th monthly payment is not delinquent

Eligible for relief after satisfactory conclusion of quality control review?

No

Yes

Please refer to Selling Guide Announcement SEL-2014-05 for further details.

For questions, investors may contact the Fannie Mae Fixed-Income Investor Helpline at 1-800-237-8627 or by e-mail.

Originally published: 05/12/14