Fannie-Freddie Clarify Buyback Rules in Effort to Spur LendingClea Benson
As part of a broader U.S. effort to persuade banks to make more home loans, Fannie Mae and Freddie Mac have released rules clarifying the types of practices that would trigger penalties for lenders.
The changes announced today by the government-owned finance firms specify when lenders would be asked to buy back flawed loans that were issued based on inaccurate data or misrepresentations of borrowers’ qualifications. They were written after the companies and their regulator reached an agreement with banks on the details.
President Barack Obama’s administration is pushing to unlock tight credit after banks were forced to buy back billions of dollars of loans issued before mortgage markets collapsed. Resistance by banks has kept first-time homebuyers and others with weaker credit out of the real-estate market.
“There are qualified borrowers who are not being served in today’s market,” Andrew Bon Salle, a Fannie Mae executive vice president, said in a statement. “With this clarity, lenders should have greater confidence in lending to Fannie Mae’s full credit standards and making mortgages available to more borrowers.”
Under the new rules, which are retroactive to January 2013, lenders won’t be asked to repurchase loans with data inaccuracies or misrepresentations of buyers’ qualifications unless the flaws are significant and apply to multiple loans. Evidence of fraud could also trigger a buyback request.
Fannie Mae and Freddie Mac, which have been under U.S. conservatorship since 2008, buy mortgages and package them into bonds on which they guarantee principal and interest payments.
The clarifications “will not impact the credit standards of Fannie Mae or Freddie Mac, but they will provide greater certainty for all parties, facilitate greater liquidity and increase access to credit without compromising safety and soundness,” Melvin L. Watt, director of the Federal Housing Finance Agency, said in a statement.