The Federal Housing Finance Agency (FHFA) Director Sandra Thompson said Wednesday that the agency is working to provide more clarity on its framework and use alternatives amid a spike in Fannie Mae and Freddie Mac‘s loan buybacks.
The GSEs’ loan buybacks have been one of the top complaints among mortgage lenders in a near 8% mortgage rate environment. Thompson addressed the issue during a session at the HousingWire Annual conference held Oct. 10-12 in Cedar Creek, Texas.
“We want to figure out a way to balance the repurchase requests and the repurchase alternatives in a way that makes sense for everybody, because I’m very sympathetic to the environment that we’re currently in. But I’m also sympathetic to making sure that we purchase loans that are heavily manufactured in the way our expectations require,” Thompson said.
According to Thompson, the loan repurchase framework was implemented nearly 10 years ago – the first thing she worked on when she started at FHFA. However, after record volumes of loans purchased by the enterprises in 2020 and 2021, there was an increase in repurchase requests in 2022.
“But I do realize that we’re in a completely different interest rate environment now. And repurchasing those loans in this high-interest rate environment certainly causes losses,” Thompson said.
She continued, “So, we’re working with the enterprises to look at how can we provide clarity [on the framework] (…) We want to make sure that we have quality loans. And that’s true on both sides.”
Thompson said she thinks not every repurchase request “either has or should end up with a repurchase.”
“Because every single defect is not a major defect. There could be some way or alternatives to repurchase that need to be considered,” Thompson said. “For example, if we’re talking about income, you may have more information that can help support a DTI [debt-to-income ratio] (…) There may be supplemental information that comes to the enterprise after the fact that probably should have met with the loan file. “
Technology also has a vital role in this discussion.
Thompson said, “If there are tools that can be helpful to the QC [quality control] process, that certainly would be helpful sooner rather than later.”
Thompson added, “It helps when you have some experience of people engaging with the enterprises on these processes because what I’ve heard is, in some cases, this isn’t always true.”
During the session, Thompson said that “there is urgency” on the loan repurchase matter.
“From my perspective, the repurchase request has gone down since the early days of 2022. It takes about six months after a loan is delivered for the processes to take place. And so we are seeing a downward trend in terms of repurchase requests.”
She added, “But what I would like to get in place is our repurchase alternatives and making sure that both parties – enterprises and the sellers – have a good understanding of what the requirements are.”