Freddie Mac Plans Fee-Based Repurchase Alternative for Performing Loans

(Stock Photo of Mortgage Documents Courtesy Anete Lusina Via Pexels)

Freddie Mac, McLean, Va., plans a pilot program that could replace the current approach to seeking repurchases for performing loans with origination defects. Freddie Mac previewed aspects of the pilot program in October at MBA’s Annual Convention. 

The Freddie Mac pilot program will use a fee-based structure that could be more efficient and transparent and that would reward lenders that deliver well-manufactured loans. The program should also mitigate the need for protracted research and negotiation on a loan-by-loan basis. 

This fee structure began in Q4 2023 with a limited rollout with 12-15 pilot participants representing a cross section of small, medium and large lenders. 

Mortgage Bankers Association President and CEO Bob Broeksmit, CMB, noted MBA has advocated strongly for FHFA to address the GSEs’ increased incidence of loan repurchase requests, especially for performing loans and those with relatively minor issues underwritten during the pandemic.

“We share FHFA and the GSEs’ goal of high-quality underwriting and will continue to work with them to ensure the rep and warrant framework is being applied in a balanced way, and that there are appropriate alternatives that lead to outcomes other than a repurchase request on performing loans,” Broeksmit said.

Broeksmit noted MBA has engaged “extensively” with the GSEs and FHFA on the subject and praised Freddie Mac’s effort to re-think the process.

Under the Freddie Mac pilot program, lenders with a non-acceptable quality (NAQ) rate below a specified threshold will not be subject to repurchases on most performing loans, while others with higher rates will instead be subject to a fee-based structure based on a sliding NAQ scale. By substituting a small fee for a repurchase demand at lower level NAQs, the pilot achieves the goals the MBA set out in discussions with Freddie Mac: alleviating liquidity strains caused by repurchases of performing loans, while maintaining incentives for quality originations.

The fee will apply uniformly to medium and large lenders based on NAQ rates. Charter noncompliant loans and loans with manufacturing defects that are non-performing within 36 months or subject to life of loan defects may still be subject to repurchase based on the current rep and warrant framework.

Notably, for smaller lenders that do not deliver a large enough volume to generate a statistically significant NAQ rate, Freddie Mac will not seek repurchases on performing loans, except for charter noncompliance.

In addition to the pilot, Freddie Mac has already taken other steps to improve its Quality Control (QC) process including independently reviewing disputes, adding additional internal reviews prior to issuing repurchase requests, and accelerating Guide updates to improve clarity and provide more consistent feedback to lenders.

MBA will continue to partner with Freddie Mac on QC issues and will stay abreast of developments related to the upcoming pilot program.  

The opening special session at MBA’s Independent Mortgage Bankers Conference in New Orleans Jan. 22-24 will be a repurchase strategy session for lenders only (open to independent mortgage lenders only with active MBA Regular Membership status; closed to nonmembers, associate members and the media). The subject will also be discussed in a Fireside Chat with the GSEs general session at the same conference.