Fannie Mae Announces New Lender Framework and QC Process

1 September 12, 2012. Fannie Mae Announces New Lender Framework and QC Process By Anna DeSimone On September 11, 2012 Fannie Mae issued selling guide announcement SEL-2012-08, New Lender selling Representations and Warranties Framework . Also on 9/11/12, the agency issued LL-2012-05: Fannie Mae's Quality control Process . The announcements introduce a Framework to provide lenders with relief from enforcement of remedies for breaches of certain representations and warranties on new loan deliveries meeting specific payment history requirements. The new Framework applies only to conventional loans that are acquired by Fannie Mae on or after January 1, 2013.

2 New Lender selling Representations and Warranties Framework For conventional loans that are acquired by Fannie Mae on a flow basis on or after January 1, 2013, the Lender will be relieved of its obligation to remedy mortgage loans that are in breach of certain underwriting and eligibility representations and warranties if the borrower meets one of two payment history requirements and the other eligibility criteria described in the guide as "Eligible Mortgage Loans.". No relief will be available for breaches of certain "life of loan" representations and warranties, regardless of the borrower's payment history. Historically, many issues related to compliance with Fannie Mae's underwriting and eligibility requirements were not detected until after loans became delinquent or the foreclosure Process was completed.

3 Given the increase in loan delinquencies and foreclosures, loan repurchase requests have increased over the past several years, highlighting the need for a better approach for working with lenders to deliver loans that meet Fannie Mae's underwriting and eligibility requirements. In adopting this new Framework , the GSEs are not modifying the representations and warranties currently in effect, nor are they discharging a Lender from the responsibility for underwriting and delivering quality loans in accordance with the acquiring GSE's requirements. Copyright 2012 Bankers Advisory, Inc. Page 1 of 6. Instead, the new Framework will provide lenders with relief from Fannie Mae's enforcement of remedies for breaches of certain underwriting and eligibility representations and warranties for new loan acquisitions commencing in 2013 that meet specific payment history requirements.

4 Eligible Mortgage Loans To be eligible for the new representation and warranty Framework , a mortgage loan must meet the following requirements: 1 - The mortgage loan must have a January 1, 2012 or later acquisition date: whole loans purchases on or after January 2013, or mortgage loans delivered into MBS with an issue date of January 1, 2013 or later;. 2 - The mortgage loan must meet one of the following payment history requirements: The borrower was not 30 days delinquent during the 36 months following the acquisition date, or for Refi Plus and DU Refi Plus mortgage loans, the borrower was not 30 days delinquent during the 12 months following the acquisition date; or the borrower (i) had no more than two 30-day delinquencies and no 60- day or greater delinquencies, during the 36 months following the acquisition date; and (ii) was current as of the 60th month following the acquisition date.

5 With the exception of mortgage loans with temporary buydowns, neither the Lender nor a third party with a financial interest in the performance of the loan ( mortgage broker, correspondent Lender , mortgage insurer) can escrow or advance funds on behalf of the borrower to be used for payment of any principal or interest payable under the terms of the mortgage loan for the purpose of satisfying the payment history requirement. 3 - The mortgage loan must be a conventional mortgage loan (including Refi Plus and DU Refi Plus and sold to Fannie Mae on a flow basis. Government-guaranteed or -insured loans are not eligible for inclusion under the Framework .)

6 Non-flow, seasoned or bulk mortgages may be eligible for inclusion on a negotiated basis. 4 - The mortgage loan cannot have been sold to Fannie Mae with any credit enhancement other than traditional primary mortgage insurance ( Lender - or borrower-paid mortgage insurance). Copyright 2012 Bankers Advisory, Inc. Page 2 of 6. 5 - The mortgage loan cannot have been subject to a forbearance agreement, repayment plan or otherwise have been modified from its original terms during the applicable qualifying pay history period. 6 - With the exception of certain loans purchased under the terms of a long-term standby purchase commitment, the loans cannot have had any delinquencies between the origination date and the Fannie Mae acquisition date.

7 7 - For loans classified as "Class 1 Mortgage Loans" or "Class 4 Mortgage Loans" that are purchased under a long-term standby purchase commitment (LTSC), the payment history requirement will be measured from the date the loan was committed under the LTSC structure. 8 - The mortgage loan must not be subject to an outstanding request for repurchase, repurchase alternative or make-whole payment. Related Changes to the Quality Control Process Integral to the new representation and warranty Framework is the quality control review Process and enforcement of violations. The Quality Control Lender Letter discusses the changes in Fannie Mae's quality control Process that lenders can expect as a result of the relief provided by the new Framework .

8 Fannie Mae will evaluate the mortgage loan file with the primary focus of confirming that the mortgage loan meets underwriting and eligibility requirements. A mortgage loan is ineligible if errors or failures are uncovered in the file that would have resulted in Fannie Mae's refusal to purchase the mortgage loan on the terms delivered had the facts been known at the time of acquisition. Copyright 2012 Bankers Advisory, Inc. Page 3 of 6. What Will Continue As part of this effort, Fannie Mae is reinforcing the commitment to: Ensure that lenders continue to have the opportunity to resolve loan repurchase requests through an appeals Process .

9 Continue to provide detailed and timely feedback to lenders, as appropriate, particularly on significant or systemic origination, underwriting, or quality control deficiencies; and Conduct quality control reviews that evaluate loan files on a comprehensive basis with the primary focus of confirming the mortgage loan's eligibility. Fannie Mae continues to expect that lenders have origination, underwriting, and quality control processes in place that meet the requirements of the selling guide . What is Changing How Loans Are Selected Fannie Mae uses a statistically valid approach in selecting a random sample of new mortgage loan deliveries for review.

10 Beginning in early 2013, this random sampling will be augmented with targeted, discretionary sampling, taking advantage of the recent advancement in tools and data-gathering requirements. Random Sampling: Selecting a random sample of new mortgage loan deliveries aids Fannie Mae in measuring the overall quality of loan deliveries. Discretionary Sampling: Fannie Mae will employ a number of technology tools and internal models to identify earlier in the post-acquisition review Process mortgage loans that may not meet Fannie Mae requirements and issues that may affect loan underwriting quality. Copyright 2012 Bankers Advisory, Inc.