Trade groups commend Fannie Mae’s newest step to address buybacks

Mortgage trade groups have commended the moves taken by the Federal Housing Finance Agency (FHFA) and the government-sponsored enterprises (GSEs) to address a spike in loan buybacks — the latest being a new electronic notification made available by Fannie Mae. But advocates also say more is needed to improve the loan repurchase process.  

On Feb. 24, Fannie Mae announced the addition of a “notice of potential defect” functionality to the latest version of its system Loan Quality Connect. The new alert is similar to the “loan quality defect notice” that Fannie Mae has retired. A lender remediation specialist or a lender manager can address the notification. 

“When a notice of potential defect letter is sent to a lender, the user is given 30 calendar days to address any defects cited prior to a resolution request being issued,” Fannie Mae said in its release note. 

The new functionality, added to the quality control process, “gives mortgage lenders the opportunity to address loan defect concerns earlier in the review process,” Scott Olson, executive director of the Community Home Lenders of America (CHLA), said in a statement. 

“We hope it will lead to fewer costly and economically inefficient repurchase demands,” Olson added.

The benefit of providing more time for lender feedback was also noticed by the Mortgage Bankers Association (MBA). President and CEO Bob Broeksmit expressed his appreciation with the agency’s move, which aligns with recommendations made by the MBA. 

“But there is further work Fannie Mae can undertake — including exploring a similar pilot program to Freddie Mac‘s — to improve the loan repurchase process and substantially reduce or eliminate repurchases on performing loans,” Broeksmit said. 

Broeksmit‘s reference is to a fee-based repurchase program for performing loans announced in November 2023 by Freddie Mac. The goal of the alternative pilot program is to improve the quality of performing loans through a potential replacement of its current repurchase policy by defective performing loans. 

Olson said the GSEs’ steps represent “real progress” in addressing the repurchase issue. 

“These developments represent a more constructive approach to the dual objectives of maintaining GSE loan quality while not disincentivizing loans for underserved borrowers or eliminating borrower loss mitigation rights under repurchase demands,” Olson said. 

Broeksmit added, “We will remain engaged with the GSEs and FHFA to ensure high-quality underwriting and an appropriate rep and warranty framework.” 

In October, FHFA Director Sandra Thompson said the regulator expects originators to deliver loans consistent with GSE guidelines. But she added that the enterprises must implement a fair, consistent and predictable process for identifying loan defects and the appropriate remedies.

“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 MBA Annual conference in October 2023.

“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.”