In the aftermath of the housing collapse, government sponsored enterprise (GSE) conservator, the Federal Housing Finance Agency (FHFA) sought to recoup losses accrued from the enormous taxpayer bailouts and hundreds of thousands of defaulted mortgages.  The result of this effort was a multi-year campaign to carefully reexamine mortgages sold to Fannie Mae and Freddie Mac.  Mortgage originators immediately faced an enormous volume of buyback requests for loans containing even minor, inconsequential underwriting errors.

In the years spanning from 2011 to 2013, the mortgage industry saw record-high repurchase demands, costing a total of $81 billion. In response to FHFA’s aggressive representation and warranty requirements, the remaining mortgage lenders have retreated to extremely conservative lending.

It appears that banks and independent lenders can finally expect a reprieve from the stringent examination of legacy business. At the Mortgage Bankers Association’s Annual Convention last week, FHFA Director Mel Watt announced reforms to the GSE representation and warranty requirements.  The planned changes include revisions to the definition of life of loan exclusions, the establishment of alternative remedies for underwriting errors and options for dispute resolution, as well as standards to evaluate the significance of underwriting errors.  These changes are likely to be extremely impactful in limiting the scope of future buybacks from Fannie Mae and Freddie Mac and are also expected to help ease housing credit availability.


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