DeMarco: Fannie and Freddie Will Evaluate Mortgage Risk Earlier
Edward DeMarco, acting director of the Federal Housing Finance Agency, said Monday that Fannie Mae and Freddie Mac will launch a new representation and warranty framework that will ease repurchase obligations on lenders after borrowers build a history of on-time payments, between 30 to 120 days after loan purchase.
Lenders participating in streamlined refinance programs, including HARP, will be eligible for relief after an acceptable payment history of only 12 months following the acquisition date.
Freddie and Fannie will evaluate loans within consistent timelines and promise a more transparent appeals process for lenders to appeal repurchases requests, DeMarco said. The changes will result in better quality originations and underwriting which will ultimately protect the enterprises from substandard loans and future losses, he said.
He delivered the news during an address in Raleigh, N.C. to the American Mortgage Conference.
DeMarco also said the FHFA anticipates issuing a white paper for public comment on a new securitization infrastructure.
“A cornerstone of what we are seeking to build is a new securitization platform that could serve both Fannie and Freddie while in conservatorship -- and potentially serve the secondary mortgage market in a post-conservatorship world that has multiple issuers of mortgage-backed securities,” he said.
The new infrastructure would also set new standards for contractual agreements, rules and regulations, he added. However, changes won’t come quickly: DeMarco predicted the actual building of the securitization platform would be “a multi-year effort.”
The FHFA said it will soon release another paper for public input that proposes a state and local specific pricing approach. In general, the agency will seek input on imposing an upfront fee on newly acquired single-family mortgages originated in states where Fannie and Freddie are likely to incur default-related costs that are significantly higher than the national average.
Through the enterprises and federal assistance programs, taxpayers are accountable for 90% of U.S. mortgages.
“It is imperative that we work to transition the mortgage market to a more secure and sustainable and competitive model,” DeMarco said.