The Federal Housing Finance Agency (FHFA) announced policy updates last month in an effort to support “current and aspiring homeowners, as well as renters, who face persistent affordability challenges in the housing market.” To that end, they’ve expanded eligibility on a targeted pilot program previously launched by Freddie Mac. This repurchase alternative will allow lenders to opt into a fee-based option on an annual basis. Lenders that do not opt to participate in this new program may select a “fee only” loan level option, where the fee is assessed in lieu of repurchase. Both alternatives require that the loan be performing, and fees are calculated based on the organization’s non-acceptable quality (NAQ) rate. The latter is a critical component of quality control (QC), in conjunction with the analysis of loan defect trends, and overall QC sampling.
Freddie Mac originally introduced their pilot in response to an industry high in NAQ rates back in the third quarter of 2022, resulting in inordinately high repurchase requests in early 2023. Based on pilot findings and lender feedback, Freddie Mac is now expanding the program in line with their efforts to continuously improve quality control processes and reduce repurchase requests. Historically, loan repurchase has been the standard approach to addressing significant defects that are uncovered through the QC review process. The FHFA and Freddie Mac, as well as Fannie Mae, are all looking at new ways to minimize loan defects and their impact on the industry. Their overall goal is to enhance communication, collaboration, and transparency, in addition to making a meaningful impact on reducing loan defects, repurchase requests and related costs for lenders.
Key Features of the Expanded Pilot
· Fee-Based Structure: Lenders with a NAQ rate exceeding two percent will incur fees based on a quarterly assessment of unpaid principal balances on delivered loans.
· Optional Participation: Lenders can annually choose to participate in the fee-based repurchase alternative or continue with traditional repurchase options, which can provide more flexibility in managing loan quality remediation.
· Support for Small Lenders: Freddie Mac will waive fees for smaller lenders that lack the sampling volume needed to determine a “statistically significant” NAQ rate, ensuring equitable approaches to repurchase across varying institutional sizes.
Additional Benefits for Lenders
· Fee-Only Remedy Options: For lenders opting to continue to work under traditional repurchase frameworks, Freddie Mac will extend a fee-only remedy for eligible loans, offering immediate rep and warrant relief without requiring loan repurchase. This option will be available for loans purchased starting in the new year.
· Enhanced Transparency: Beginning Q1 of 2025 Freddie Mac will publish quarterly reports on repurchase data. The intent is to assist lenders in benchmarking their defect performance against industry standards, as well as creating greater transparency in loan quality assessments.
Avoiding Repurchase
These viable options for avoiding a costly repurchase will also assist in realigning lender focus on trends in loan defects versus time spent appealing repurchase requests. QC Verify recognizes the importance of identifying defect trends before they become problematic. This preventive foresight is designed to meet each client’s specific needs, taking client objectives and resource availability into consideration. QC Verify prides itself on offering a unique and individualized experience that surpasses a typical checkbox approach to quality control. From fraud, misrepresentation, and simple errors to data issues and misplaced documentation, we are here as your first and last line of defense. By coupling modern automation with human expertise, QC Verify provides the critical audit solutions you need to support early detection of defects and trending, helping remediation occur prior to sampling and further consequence.
As you prepare for the holidays and forthcoming New Year, prepare to experience the distinction that a meaningful QC partnership can make. Ready your organization to effectively manage loan defects and embrace new repurchase alternatives with QC Verify, sophisticated technology with a human touch.
Comments