Freddie Mac’s Kevin Kauffman on DPA, Repurchases: #MBAIMB24

(l-r: Freddie Mac’s Kevin Kauffman with Laura Escobar, 2024 MBA Chair-Elect and President of Lennar Mortgage)

NEW ORLEANS–It’s important to solve problems together as an industry, Freddie Mac Vice President of Single-Family Client Engagement Kevin Kauffman said here at MBA’s Independent Mortgage Bankers Conference.

“I think that’s one of the biggest things we care about,” Kauffman said. “It’s going to be one of our biggest initiatives for this year–how do we get out even more than what we are right now?”

Speaking to moderator Laura Escobar, 2024 MBA Chair-Elect and President of Lennar Mortgage, Kauffman said Freddie Mac will continue its BorrowSmart program. “BorrowSmart is one of the initiatives that has been in the market providing down payment assistance for the past few years. We look at that program in a similar way that Fannie Mae looks at it.” [On Wednesday Fannie Mae announced an enhancement to its HomeReady program to temporarily offer a $2,500 LLPA credit to address some of the barriers to entry for very low-income borrowers.]

Kauffman called the down payment one of the top barriers to becoming a homeowner. He said he hopes Freddie Mac’s DPA One program will further penetrate the market this year.

“For those of you who are not familiar with what DPA One is, it’s a program that we created and brought to the market that’s available to loan officers and mortgage companies. But we’ve also created a version of DPA One that is used by down payment assistance program managers. Think about it on the municipality level; anyone who’s offering a down payment assistance program, we are providing them with a back-office tool that can connect you as the seller and as the lender to that offering.”

Kauffman said there are nearly 500 different offerings in the program today. “And we’re actually building it out by state based upon the number of programs that are available,” he said. “We’ve added hundreds of loan officers to start using the program.”

“Again, I think we all agree that that down payment assistance is a critical factor,” Kauffman said. “So when we think about what we want to accomplish, we’re going to continue to not only provide subsidy within solutions, such as BorrowSmart and other programs. But the idea is to also put tools in the hands to connect everybody in the industry. That’s one of our biggest objectives.”

Escobar suggested lenders “should be all over DPA right now if we’re going to survive 2024, especially the first quarter. So I thank you for bringing that up,” she said. “And I’m going to say the same thing I said to Tim [Tim McCallum, senior vice president and head of single-family business account management at Fannie Mae]: the relationship between the GSEs has been amazing. And the fact that you are constantly out there shaking hands, asking questions and getting involved in how we do business is critical.”

Kauffman also touched on repurchases. Freddie Mac recently announced a pilot program that could replace the current approach to seeking repurchases for performing loans with origination defects. “I want to say that a year ago at this event, you could cut the tension with a knife in the industry,” he said. “We’ve had a lot of conversations. I’ve had a lot of conversations with a lot of folks here. And you know, I made the joke that it was like pitchforks and torches [last year], there was real pain that the industry is living through.”

“It took us being able to look in the mirror,” Kauffman said. “That’s what we started with. We opened the doors to ask what feedback do you have for us. We created a council, we invited different people to tell us how they felt and tell us what their biggest challenges are. Because if we were to wait to launch a pilot, we wouldn’t have seen the success that we had.”

Kauffman said managing the risk of this industry is a shared responsibility, “no matter if you’re a technology provider, an originator or if you’re MBA, it’s something we all care about, because we’ve lived through the cycles of pain in the past, how do we look at these things and say: look in the mirror, make changes and evolve and adapt.” He noted Freddie Mac hired Jeffrey Smith as vice president of quality control and operational risk management. “He’s an industry expert in operations,” he said. “And as a result of these changes, we actually saw a reduction of repurchase demands of up to 60%, because of you focusing more on quality as well as our changes in operations. That was a massive change.”

“We also looked at whether we were sending out repurchase requests without a second look,” Kauffman said. “Are we sending it out for something that’s immaterial? What are the things that we’re doing that do not require policy changes? We started there, and we started to make incremental changes that resulted in what feels like 800 pounds off of my back from the phone calls that I get every day. I hope you all feel it too. I’ve heard that you all have; that this is a dramatic difference.”