Editor's Note: National Mortgage Professional contributing writer Lew Sichelman is onsite at this week's Mortgage Bankers Association annual conference in Denver. This is one of a series of reports from the event, exclusively for NMP.
Freddie Mac will expand its performing loan repurchase pilot to all lenders beginning in the first quarter of 2025. But for those who don’t want to participate, the government-sponsored enterprise will offer a new fee-only option under which lenders can obtain immediate reps and warrants relief in lieu of buying back a defective loan.
The announcement was made at the Mortgage Bankers Association (MBA) Annual Convention, where even its secondary market rival seemed excited about the change. “We are watching what you are doing,” said a “thrilled” Fannie Mae President Priscilla Almodovar.
The change was first announced by Naa Awaa Tagoe, a deputy director of Freddie and Fannie’s conservator, who told a convention session that it would “alleviate some of the pressures” concerning loan repurchases.
MBA President Bob Broeksmit also praised the expansion, calling it “another important step toward encouraging high-quality underwriting and eliminating performing loan repurchases.”
Currently, loan repurchase is the primary remedy for all loans with significant defects identified during quality control reviews, regardless of performance status. It is a decades-old policy.
However, under the pilot, which began in this year’s first quarter, lenders will no longer be subject to repurchases on most performing loans. Rather, they will be part of a fee-based structure that incentivizes quality loan originations and helps offset Freddie Mac’s credit risk for loans with significant defects that default after the 36-month R&W period.
It works like this: Lenders with a Non-Acceptable Quality (NAQ) rate above 2% will be charged a fee in a stepped-up approach based on the unpaid principal balance of loans delivered for the quarter. The fee will be assessed on lenders who deliver enough loan volume to generate statistically significant sampling.
Lenders won’t be required to repurchase most performing loans with significant defects and Freddie Mac will waive fees for small lenders that do not have a statistically significant NAQ rate.
Because the program is optional, lenders can determine on an annual basis which path they want for performing loan repurchases for the upcoming year.
The process for lenders to appeal and/or correct loans with defects as defined in the Seller/Servicer Guide will remain unchanged.
The expansion is “part of making good on our commitment to be part of the solution and build upon the progress we already made with lenders and industry partners over the past year,” said Sonu Mittal, SVP and head of Single-Family Acquisitions at Freddie Mac.
The company says it has seen “a definitive declining trend” in performing loan repurchase requests over the past two years. And with that decline, repurchase requests also are trending down, to roughly 55% lower than their peak in the first quarter of 2023.
Within that 55%, repurchase requests to small and community lenders are even lower, down from 80%, the company reported.
