Initiative Tackles Rising Repurchases

Approved Fannie Mae lenders have faced growing repurchase requests during the past three years, bringing to light compliance issues that are exposed only after loans default. The secondary lender said the need to improve its approach to working with lenders prompted it to conduct an “extensive analysis” to determine the primary drivers of repurchase requests.

As a result of the analysis, the Washington, D.C.-based company is launching a loan quality initiative “to identify and implement policy, process, and technology enhancements to improve the compliance with underwriting and eligibility guidelines and mitigate repurchase risk.”

Fannie hopes to capture critical loan data earlier in the process. It also plans to validate the data before, during and immediately following loan delivery.

In Lender Letter LL-2010-03, the government-controlled enterprise said it plans to release a number of selling and servicing guide announcements describing specific changes under the initiative.

On area of focus is the verification of the identity. This includes enhancements tied to Social Security numbers and Individual Taxpayer Identification Numbers. Changes on Desktop Underwriter will require lenders to take steps to verify these numbers when red flags pop up. Data integrity warnings will begin on May 17, while edits will become “fatal” on July 26. Validation edit warnings will be implemented on July and become “fatal” on Jan. 3, 2011.

Another area of focus is occupancy. When red flags show up in this area, lenders will need to document and reconcile occupancy.

Fannie said it will no longer accept delivery of loans that were either originated, underwritten or serviced by individuals or companies listed on the federal General Services Administration Excluded Party list or the U.S. Department of Housing and Urban Development’s Limited Denial of Participation list.

Also on the agenda are updated quality-control policies — which are being “substantially” rewritten. A new feedback loop is expected to help validate the effectiveness of the policies.

Fannie said lenders need to take steps to ensure all debts are included in the application.

Among loan-delivery enhancements is the change from “optional” to “required” for some fields. But the secondary lender acknowledged possible snags in the implementation of new delivery requirements and noted it will work with lenders to identify potential issues.

While lenders previously had the option of delivering “Housing Goals” data elements using a supplemental process after delivery, this information will now be required at delivery. The impacted data include borrowers’ birth dates, monthly income, debt expense, note date, appraisal amount and purchase price.

Fannie said that loan-to-values will now be truncated in its loan delivery system at two decimal places, and the truncated number will be rounded up to the next whole percent. An example cited a truncated figure of 96.01 percent and indicted it would be rounded up to 97 percent.

Reports available this month will include details on specific loans that received warning messages as well as summary data such as the share of loans that received warning messages.

Fannie outlined a number of other requirements in the lender letter.

Fannie separately announced that it plans to significantly increase its purchase of 120-delinquent loans from its single-family mortgage-backed securities trusts. As of Dec. 31, 2009, these loans amounted to around $127 billion. Between 150,000 and 200,000 of delinquent loans are expected to purchased this month, and purchases are expected to continue for the next few months.