Fannie, Freddie Ease Rules for Mortgage Lenders
October 07 2015 - 6:00PM
Dow Jones News
Mortgage lenders on Wednesday received new assurances from
mortgage-finance giants Fannie Mae and Freddie Mac that they won't
be slammed with onerous penalties for what they say are relatively
minor errors made when underwriting loans.
Fannie and Freddie released new guidelines detailing the
remedies lenders will be responsible for providing should errors be
found in loans they sell to the companies. The goal, the companies
say, is to persuade the lenders to expand mortgage access to
riskier borrowers.
Fannie and Freddie don't make loans. Instead, they buy mortgages
that meet certain requirements, wrap them into securities and
provide guarantees to make investors whole if the mortgages
default.
After the financial crisis, Fannie and Freddie found billions of
dollars of mortgages they said contained errors, prompting the
mortgage companies to demand that lenders buy back the loans.
Lenders bristled, believing the punishment sometimes was too
extreme for the errors committed. As a result, they pulled back
from lending to borrowers with weaker credit, even if such
borrowers technically qualified for Fannie- and Freddie-backed
mortgages.
To allay lenders' concerns and broaden mortgage access, Fannie,
Freddie and their federal regulator have worked over the past few
years with lenders to define more clearly the repercussions they
would suffer for making errors. Last fall, for example, the
companies reached an agreement with lenders on what kinds of errors
they'd still be liable for years after making a mortgage.
On Wednesday, Fannie and Freddie said that rather than require
lenders to buy back loans with insignificant defects, it would
require them to pay Fannie or Freddie what would have been paid to
the companies had the details been accurate.
"Lenders consistently tell us that concerns about repurchases
limit their willingness to lend, so we're trying to put those
concerns to rest," said Fannie Mae Executive Vice President Andrew
Bon Salle in a statement.
There are signs the efforts are working. A Fannie Mae survey
released last month said 23% of lenders believed credit standards
on Fannie- and Freddie-eligible loans had eased over the past three
months, versus 12% a year earlier.
On the other hand, merely 13% said that such standards had eased
on loans backed by government agencies including the Federal
Housing Administration, which is currently undergoing a more
contentious effort to clarify lenders' underwriting
liabilities.
In a statement, David Stevens, president of the Mortgage Bankers
Association, a trade group, said Wednesday's release "will add
additional clarity to the broad lending community, which should
help lenders' confidence to lend knowing that nonmaterial errors
that would not lead to default will not expose the lender to
abusive risks."
Write to Joe Light at joe.light@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 07, 2015 17:45 ET (21:45 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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