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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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
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