As we’ve moved through 2023, lenders everywhere are reporting increased buyback requests from Fannie and Freddie, who have become more aggressive. The general feeling is that lenders, who have been consistently losing money or breaking even this year, believe the government-sponsored enterprises (GSEs) are not being consistent with commitments made in recent years about materiality and options for remediation and have changed their quality control and sampling methodology. Lenders, which obviously include independent mortgage banks, are using staff time and resources, thus adding costs to a lender’s bottom line.
Freddie and Fannie’s more aggressive posture may be because they are concerned about the potential failures of some of their lender customers during these difficult times, and therefore, they would lose their counterparty to warranty defects on loans should they go to default. But for the last several years, Fannie & Freddie’s end-run around the large aggregators and marketing directly to the small and mid-sized lenders is well known in the industry.
Smaller lenders may not have the expertise or experience (yet) to analyze some basic decisions between selling loans directly to the GSEs (through the cash window) or securitizing loans themselves. It is helpful to have a primer on what that means and know what might be going on behind the scenes influencing decisions.