Key Takeaways:
– Freddie Mac plans to launch a new fee-based repurchase alternative pilot program for performing loans in 2024.
– The program aims to improve the quality of performing loans and potentially replace the current repurchase policy for defective performing loans.
– The fee-based structure will be more efficient, transparent, and reward lenders that deliver high-quality loans.
– Lenders will not be subject to repurchases on most performing loans but will instead pay a fee based on non-acceptable quality (NAQ) rates.
– The fee applies to both medium- and large-sized lenders, but smaller lenders with low loan volume will have the fee waived.
– Non-performing loans within 36 months and loans with life of loan defects will still be subject to repurchase.
– The fee structure will start with a limited rollout with targeted lenders in early 2024.
– The Federal Housing Finance Agency (FHFA) Director, Sandra Thompson, emphasized the need for a fair and consistent process for identifying loan defects and appropriate remedies.
– Freddie Mac and Fannie Mae have been working to improve their processes and practices, including enhancing selling guidelines and providing more consistent feedback to lenders to minimize ambiguity during underwriting.
HousingWire:
Freddie Mac will launch a new fee-based repurchase alternative pilot program for performing loans in 2024, designed to improve the quality of performing loans through a potential replacement of its current repurchase policy for defective performing loans.
“The pilot will use a fee-based structure that is more efficient, transparent and rewards lenders that deliver high-quality loans,” the GSE said. “Specifically, lenders will not be subject to repurchases on most performing loans and will instead be subject to a fee-based structure based on non-acceptable quality (NAQ) rates.”
That fee uniformly applies to both medium- and large-sized lenders based on NAQ rates, and will be waived for smaller lenders unable to deliver volume large enough to generate an NAQ rate that is “statistically significant.”
“Loans that are non-performing within 36 months or subject to life of loan defects will still be subject to repurchase,” Freddie Mac said. “This fee structure will begin with a limited rollout with targeted lenders in early 2024.”
Last month, Federal Housing Finance Agency (FHFA) Director Sandra Thompson said that the GSEs must implement a fair, consistent and predictable process for identifying loan defects and the appropriate remedies for them during an October event hosted by the Mortgage Bankers Association (MBA) in Philadelphia.
“After multiple years of record-high loan volume, we have seen an increase in the absolute number of repurchase requests – which is to be expected,” Thompson said at the event. “The good news is that there has been a large decrease in repurchase requests since their peak in early 2022, as the Enterprises have worked through loans originated during the refinance boom.”
Thompson went on to say that both Freddie Mac and Fannie Mae have examined their existing processes and practices, which include improving the language in selling guidelines and providing more consistent feedback to lenders on buybacks to minimize ambiguity during the underwriting process.
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Property Chomp’s Take:
Freddie Mac, one of the leading mortgage loan providers in the United States, recently announced that it will be launching a new fee-based repurchase alternative pilot program for performing loans in 2024. This program aims to enhance the quality of performing loans by potentially replacing the current repurchase policy for defective performing loans.
According to Freddie Mac, the pilot program will utilize a fee-based structure that is more efficient, transparent, and rewards lenders who deliver high-quality loans. Instead of being subject to repurchases on most performing loans, lenders will now be subject to a fee-based structure based on non-acceptable quality (NAQ) rates. This fee will be uniformly applied to both medium- and large-sized lenders, while smaller lenders who cannot generate a statistically significant NAQ rate will have the fee waived.
It is important to note that loans that become non-performing within 36 months or are found to have life-long defects will still be subject to repurchase under this new fee structure. The program will be rolled out with targeted lenders in early 2024.
This move by Freddie Mac aligns with the directives of the Federal Housing Finance Agency (FHFA) to implement a fair, consistent, and predictable process for identifying loan defects and determining appropriate remedies. FHFA Director Sandra Thompson emphasized the need for such a process during an event hosted by the Mortgage Bankers Association in October. Thompson acknowledged the increase in repurchase requests in recent years but highlighted the decrease since the peak in early 2022.
Both Freddie Mac and its counterpart Fannie Mae have been examining their existing processes and practices to address the concerns of lenders. They have been working on improving the language in selling guidelines and providing more consistent feedback to lenders on buybacks to minimize ambiguity during the underwriting process.
In conclusion, the introduction of Freddie Mac’s new fee-based repurchase alternative pilot program for performing loans is a significant step towards improving the quality of loans in the mortgage industry. By incentivizing lenders to deliver high-quality loans and providing a transparent fee structure, this program aims to streamline the loan process and ensure a fair and predictable environment for lenders. It will be interesting to see the impact of this pilot program and how it shapes the future of loan repurchase policies in the mortgage industry.
