Easing Mortgage Cost and Credit with Rep & Warrant Relief
This month’s Federal Housing Finance Agency (FHFA) announcement on the launch of a new government-sponsored entities (GSE) representation and warranty framework exemplifies continued efforts to drive down cost and evolve the mortgage industry toward automated data-driven processes. Fitch Ratings sees the corresponding GSE delivery enhancements as creating solid benefits for both mortgage lending and the housing industry. The repurchase relief parameters place greater emphasis on quality control processes, moving default reviews so they occur at time of investor delivery versus time of default. Repurchase relief, coupled with expanded product offerings for rep and warrant relief on new originations, creates real opportunity for lenders to reduce liability concerns and expand credit availability.
The GSEs respective product offerings that offer rep and warrant relief in order to alleviate repurchase risk have continued to expand since their release in October of 2016. The most recent addition being the inclusion of purchase loan eligibility, which should entice those lenders that have not yet taken advantage of these programs. Freddie Mac’s Loan Advisor Suite® was the first to include purchases, with Fannie Mae’s Day 1 Certainty™ adding this option last week. There are nuances to both programs that create different opportunities for lenders. Day 1 Certainty has a very limited number of vendors that ensure rep and warrant relief; however, relief is extended to income, employment, assets and collateral. Conversely, Freddie Mac’s Loan Advisor Suite only offers rep and warrant relief on appraisal defects, yet partners with multiple vendors in offering automated origination services. A quick overview of these programs in terms of rep and warrant relief follows:
*RR = Rep & Warrant Relief Availability
The more recent announcement from FHFA eliminates repurchase requirements on mortgage loans that meet payment eligibility requirements. Applicable on loans made on or after January 1, 2013, rep and warrant relief is available on payment histories that reflect on-time payments for 36 consecutive months. Loans originated under the Home Affordable Refinance Program (HARP) are eligible for relief after 12 months of consecutive on-time payments.
FHFA also included changes in quality control review requirements in this announcement. Based on historical QC reviews, FHFA found significant underwriting and documentation deficiencies that could be minimized by moving “the focus of quality control reviews from the time a loan defaults up to the time the loan is delivered.” The goal is to reduce costs and improve origination efficiencies by directing Fannie Mae and Freddie Mac to increase post purchase QC requirements, as well as improve loan submission timelines, deficiency identification parameters and the repurchase appeal process. We can expect GSE opportunities for rep and warrant relief and the ongoing automation of the loan process to continue to expand, with the possibility of more product enhancement announcements occurring as we enter the Fall conference season.
The mortgage industry never sleeps and partnering with an experienced professional QC vendor remains a key priority. QMS is the mortgage quality control and audit technology solutions company. Stay abreast of QC requirements and make certain your team is positioned to take advantage of improved process efficiency and cost savings, as well as conduct expanded QC reviews with QMS. Offering post-closing and pre-funding audits as a core product solution for over 20 years, QMS is ready to meet FHFA’s expanded QC review and verification requirements today.