Mortgage repurchases, a seemingly taboo subject in the housing market, are down significantly from their peak at Freddie Mac. What benefits does this phenomenon pose for the mortgage industry?
Chris Mock, VP Single-Family Quality Control at Freddie Mac discussed in an article released Monday some of the implications of a dying loan repurchase system, ultimately determining that this trend is beneficial for all involved in the mortgage process.
Mock says in the report that mortgage repurchases are a last option for Freddie Mac when a quality control review determines that a loan failed underwriting requirements at the time of sale. Instead, the GSE attempts to give the lender an opportunity to remediate the issue prior to repurchasing the loan.
Based on data drawn from Freddie Mac's recent Securities and Exchange Commission (SEC) report, Mock found that completed repurchases at Freddie Mac have fallen 95 percent from a $4.2 billion in 2009 to $400 million in unpaid principal balance in 2015.
"This downward repurchase trend is good for seller/servicers, Freddie Mac and taxpayers. It's also good for borrowers," Mock said. "When seller/servicers sell Freddie Mac loans with greater certainty, they are more likely to make loans that take advantage of the full extent of our credit box."
One possible cause for the dropoff in repurchase activity is the recent announcement from the Federal Housing Finance Agency (FHFA),Fannie Mae, and Freddie Mac about the establishment of an independent dispute resolution (IDR) process for solving mortgage repurchase disputes.
In 2012, FHFA, Fannie Mae, and Freddie Mac made the representation and warranty framework a priority to complete in the conservatorship scorecards, the announcement noted. The 2016 scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions provided direction to complete IDR as part of that framework. The IDR portion of the framework is designed to allow lenders to escalate unresolved loan level disputes to a neutral third-party arbitrator after the appeal and escalation processes have been exhausted, the announcements said.
"The IDR process provides the Enterprises and lenders a mechanism for resolving a repurchase dispute and avoiding the possibility that a dispute might languish unresolved for an extended period of time as has often occurred in the past," said Melvin L. Watt, FHFA Director. "IDR is the final part of the Representation and Warranty Framework which, taken as a whole, will increase clarity for lenders and will ultimately increase access to mortgages for creditworthy borrowers."