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Fannie Mae & Freddie Mac Are Clamping Down On Lenders Who Take Shortcuts

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

Fannie Mae & Freddie Mac Are Clamping Down On Lenders Who Take Shortcuts.  Fannie Mae and Freddie Mac informed Banks and Lenders this past week they are going to clamp down on them, especially on those who try to take shortcuts in originating mortgages. The two giant GSE's, Fannie Mae & Freddie Mac, will be implementing a process which will identify loans that have been incorrectly underwritten and documented.  The process is designed to identify inncorrectly underwritten loans immediately upon the sale of the loans to the GSE's.  As soon as the loan is identified as a defective loan, the Bank or Lender will be required to repurchase the loan. 

In the past several years could go by before the two GSE's would catch mistakes Banks and Lenders had made underwriting a loan.  The GSE's really did not inspect a loan for mistakes until the loan had gone into default and foreclosure.  It was usually only at this point the GSE's would go through the loan with a fine tooth comb to find defects in order to try to kick the loan back to the origination Bank or Lender.

The new process the GSE's will implement will grade Banks and Lenders in areas such as:

  • Underwriting
  • Quality Control, and
  • Governance

Once this process is implemented Banks and Lenders will be expected to have "Zero Defects" in the loans the GSE's purchase.  The GSE's have always expected the loans they purchase to be quality loans, but as I stated before never really checked loans for quality before there was a problem with the loan.  With the new process 100% of the loans are expected to be checked for quality within 120 days from purchase.

According to the GSE's there is:

"a widespread lack of control in the management of file documents, where the lender failed to obtain or provide copies of all required paperwork to support a loan decision."  

The crack down on quality is having an impact on Interest Rates as well, as additional payroll costs due to additional personal to perform quality control on loans before they are sold to the GSE's. 

Even though this program has not been fully implemented yet, Lenders have already been experiencing the rejection of loans shortly after they are sold.  The loans are returned to the Lender to correct the defect the Investor or GSE has identified.  If the Bank or Lender cannot correct the defect, the Investor or GSE will refuse to purchase the loan, and the Bank or Lender is stuck with it.  This can be very, very expensive for Banks and Lenders, and impact their ability to fund new loans.  This brings back flashbacks of Countrywide.

While I am not crazy about additional costs this new process will bring, I do think it is about time quality control was applied sooner than later.  The repurchase of mortgages years after they are originated has created much more of a problem than this new process will bring, at least with this process Banks and Lenders will have an opportunity to correct the defect.  Under the present system Banks and Lenders do not have that option.  If a loan is found to be defective even a year from the time it was originated, it is almost impossible to correct it at that point.

Fannie Mae & Freddie Mac Are Clamping Down On Lenders Who Take Shortcuts, but this is one time I am on board with the change, in-spite of the added costs.  I view this as a good thing, the present system has created way to many problems.

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam,# Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

Posted by

George Souto
NMLS# 65149

C (860) 573-1308
CALL 7 Days/Wk
Fax (860) 760-6891

Email Me
About Me
My Blog

I am a Mortgage Loan Officer who can assist you with all your mortgage & refinancing needs in
CT, and RI

I can assist you with your Conventional,
FHA, CHFA, VA, USDA, & 203K loan programs.

I reside in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Haddam. E. Haddam, Higganum, Chester, Essex, Deep River.

 

Comments (33)

Kim Boekholder Utah Real Estate/ PECO
Results Real Estate 801.580.5624 - Draper, UT
Broker Results Real Estate/Leasing Specialist PECO
This will be interesting to watch as it effects our buyers and sellers. Underwriters already have a lot of power lets hope they do their due diligence up front and not at the last hour. Great information thank you for posting it.
Sep 22, 2013 10:41 PM
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

George, seems to me the loans should be processed correctly in the first place. A likely example where the mistakes were mounting up and it was time to correct the problem. lenders who take short cuts brought this upon themselves.

Sep 22, 2013 10:45 PM
Chuck Mixon
The Keyes Company - Cutler Bay, FL
Cutler Bay Specialist, GRI, CDPE, BPOR

Looks like this is a positive move for the industry, won't to little too late, just long over due.

Sep 22, 2013 10:48 PM
Harry F. D'Elia III
WEDO Real Estate and Beyond, LLC - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

The process is already taken longer than expected when it comes to purchasing a home. I believe in control. However, this is too much.

Sep 22, 2013 11:23 PM
Marc McMaster
RE/MAX Centre Realty - State College, PA
Putting my clients before myself

The more the government gets involved the longer the process will take and the more expensive it will be.

Sep 23, 2013 12:00 AM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

George: Thanks for this. Just wait until the CFPB weighs in with their updates. There will be less mortgage banking companies around, that's for sure. Take care.

Sep 23, 2013 12:33 AM
Geoff ONeill
John L. Scott Medford - Medford, OR

Well qualified buyers will be the ones who'll get to pay for these guidelines.

Sep 23, 2013 01:01 AM
Matt Kombrink
RE/MAX All Pro - Saint Charles, IL
Your #1 Source For Real Estate

Good info, George.  The last thing we want is a repeat of all these bad loans, right?

Sep 23, 2013 01:02 AM
Ira Bodenstein
PNC Mortgage - Montclair, NJ
NMLS#: 445143

This is great news as it will hold mortgage lenders accountable for their actions.  It will also create a better understanding for lenders as to what is and what isn't acceptable underwriting.  Bottom line is borrowers should feel secure dealing with banks as they are direct lenders.

Sep 23, 2013 01:19 AM
Than Maynard
Coldwell Banker Heart of Oklahoma - Purcell, OK
Broker - Licensed to List & Sell - 405-990-8862

Will this should speed up the loan approval process.....not.

Nothing like closing the barn doors after the animals have escaped.

Just like the new PMI rate for FHA loans, future borrowers are being punished for the idiotic policies of the past.

Sep 23, 2013 01:22 AM
Kathleen Daniels, Probate & Trust Specialist
KD Realty - 408.972.1822 - San Jose, CA
Probate Real Estate Services

Can you hear my applause?  Now that the Big Bad Banks will be eating their own mistakes, they might be motivated to take better care in what they do.  In the long run, it hurts everyone when banks behave badly.

Sep 23, 2013 01:50 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

George, it sounds like more governmental control on the process of lending!    Hope this doesn't add much more time to your processing of each loan.

Sep 23, 2013 02:01 AM
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

George,

The Agent's comments are fascinating!

Where have they been the last ten years?

So much of what started the failure in the mortgage market involved just such fraud "short cutting" by mid level and small mortgage banker's wholesale operations.

As a lender (retired) I appaled this, we'll all be better off playing on a level field.

Bill

Sep 23, 2013 03:19 AM
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Hi George, As usual , I read your posts on Lenn  Harley's site. She is a good publicist for you.

Here is what I said to Lenn:

Hi Lenn, The conversation goes on..... Just what type of mortgage industry do we need? I think that with such a high percentahe of loans going through the government sponsored enterprises (GSEs) that we are at their mercy. Whatwver they want, they'll get.

If there was another outlet to sell the loans to, then lenders would have a better chance of making their own rules.

Right now the lender has the optiion of complying with the GSE's rules or keeping the loan in their portfolio. If they keep the loan then they are severly limited in the number of loans they can make.

There are a lot of "candidates" to purchase loans, such as retirement funds, insurance companies, and anybody that needs to put money aside for later use.

We are being held hostage by a big government that is out to control every aspect of our lives.

It isn't just about cost. but about choices and freedom.

 

George, I don't want to encourage fraud, but at the same time, I don't believe that the current situation where over 90% of mortgages are purchased by the GSEs is the answer.

Bill Roberts

Sep 23, 2013 03:41 AM
Helen and Larry Prier- Re-Max Gateway - Residential Real Estate
RE-MAX Gateway- Residential Real Estate Sales - Anacortes, WA
Anacortes & surrounding Skagit & Island Counties

George, When it comes to more Bureacracy I am not for it. It costs everyone more money and in the long run just uses up a lot of trees and creates more employment for government workers. Not much of an upside for our business or Buyers that I can see.

Sep 23, 2013 04:07 AM
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

George:  I think this definitely fits into that "good news  -  bad news" category.  Bad news?  There will be some additional hurdles .. there will be some additional time needed when processing loans, no doubt.  But on the Good news side, this new ruling will force those that weren't doing a proper job to up their game.  Time will tell, how each side eventually weighs out though ..

Gene

Sep 23, 2013 04:23 AM
Kevin A. Guttman-Author, ReverseMortgageSpecialist
NMLS #384936 - Colorado Springs, CO
877-251-9709

George,

Another great post.

Thanks so much!

Kevin

Sep 23, 2013 05:05 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

I tell people ALL the time, underwriters' guidelines are getting strict and it's because of the scrutiny of the loans.  You just can't breath on the loan application and get it approved, as what happened in the bubble years.  

Sep 23, 2013 06:16 AM
Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

George, I only deal with reputable lenders and with that said it has been difficult for some time on my buyers providing everything that is needed for their loan approval. I just tell them everyone is going through it and it is just part of the process.

Sep 23, 2013 11:27 AM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M
George - It will be interesting to see what comes out of this new policy.
Sep 23, 2013 04:48 PM