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: