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Seller-Servicers Face More Rigid Repurchase Late Fees

Report finds GSEs too lax on aged repurchase demands

Feb. 13, 2014

By Mortgage Daily staff

A report that is critical of the handling of late fees by Fannie Mae and Freddie Mac for aged repurchase demands is likely to lead to more late fees.

The FHFA directed Fannie and Freddie in January 2012 to develop consistent timelines and collection standards for fees and penalties and additional types of penalties and remedies.

But when it comes to aged repurchase demands, each government-sponsored enterprise was allowed to establish its own model for penalizing seller-servicers.

The findings were outlined in FHFA Oversight of Enterprise Handling of Aged Repurchase Demands from the FHFA's Office of Inspector General.

The policy led McLean, Va.-based Freddie to continue assessing late fees when sellers weren't resolving repurchase demands in a timely manner.

But the OIG found that Freddie inconsistently waived, enforced or excepted fees, costing it $284 million in lost fees.

Things are even worse at Washington, D.C.-based Fannie, which collects no late fees. According to the report, FHFA was concerned about the $5.4 implementation cost at Fannie for such a policy.

"As an indication of the program's potential, Freddie Mac could have assessed as much as $284 million from 2009 through 2012 using its existing right to assess late fees," the report stated. "And for much of that time period, Fannie Mae had a larger volume of unresolved repurchase demands than Freddie Mac. Specifically, as of July 2013, more than 10,000 of Fannie Mae's repurchase demands totaling $2.5 billion had been unresolved for at least 120 days."

The OIG also expressed concern over uncollected repurchase late fees in settlement negotiations with seller-servicers over defective loans that were sold to or serviced for Fannie and Freddie.

FHFA should quickly determine the potential monetary benefit of establishing a late fee policy at Fannie and weigh it against the cost to set up such a program, according to the OIG's recommendations.

Freddie should be directed by the FHFA to provide more details about concessions made by each seller, the OIG said. This would give the secondary lender's management and regulator information needed to manage and assess the repurchase late fee program more effectively.

In addition, the OIG is recommending that Freddie provide FHFA with information on assessed but uncollected late fees on repurchase claims included in the 2013 bulk settlements. The inspector general wants the fees considered in settlement negotiations in accordance with the Office of Conservatorship Operations' Settlement Policy.

FHFA reportedly agreed with the OIG's recommendations.

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