The Federal Housing Finance Agency (FHFA), Fannie Mae, and Freddie Mac announced Tuesday 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 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."
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 is specifically designed to address alleged loan-level breaches of selling representations or warranties that remain unresolved after completion of the appeals process," Fannie Mae and Freddie Mac noted. "The IDR process will not replace the Government Sponsored Enterprises’ current quality control and related appeal processes, but will allow a neutral third-party to resolve demands that remain unresolved after the appeal and escalation processes have been exhausted."
According to the FHFA, Fannie, and Freddie, the IDR process is available on loans delivered to Fannie Mae and Freddie Mac on or after January 1, 2016. More information will be provided in the GSEs' selling guide later this year.
Andrew Bon Salle, EVP, Single-Family Business at Fannie Mae stated, “Over the last few years, we’ve worked closely with our customers to help clarify our policies and guidelines related to representations and warranties. Our intention has been to ensure lenders can lend with confidence knowing that if they originated to Fannie Mae guidelines their risk of repurchase has been minimized. Many lenders have told us that our efforts are paying off, and that they are more comfortable lending to the full credit box of our guidelines. This latest step provides a clear, reliable and independent process to resolve disagreements over repurchase requests in a timely fashion when needed. We believe we’ve created a system that addresses our customers’ concerns. We’ll continue to work closely with our customers to drive simplicity and certainty in all aspects of our business.”
"Today's announcement finishes a four-year process to give our lenders a simpler, clearer, and more certain representations and warranties framework for originations," said Donna Corley, SVP, Division Chief Risk Officer, Single-Family at Freddie Mac. "The final piece is a new independent dispute resolution (IDR) process for handling alleged loan-level breaches of selling representations or warranties that are unresolved after completing our appeals process. This process empowers lenders to refer these disputes to a neutral third party for a final decision. The transformation of the representation and warranties framework was undertaken at the direction of the Federal Housing Finance Agency to Freddie Mac and Fannie Mae. Today's announcement underscores the steady fulfillment of our commitment to work with all stakeholders to strengthen America's mortgage finance system."
"I applaud the Federal Housing Finance Agency, Fannie Mae, and Freddie Mac for their effort in establishing another important piece to their representation and warranty framework," said Ed Delgado, President and CEO of The Five Star Institute. "The implementation of an independent dispute resolution process for resolving repurchase disputes within Fannie Mae and Freddie Mac will be a tremendous help to lenders in the mortgage industry and will increase access to credit for borrowers. I strongly support these government agencies' actions to further expand lenders' businesses and boost homeownership in the U.S."
Click here to view the FHFA announcement.
Click here to view Fannie Mae's announcement.
Click here to view Freddie Mac's announcement.