Fannie Mae and Freddie Mac executives recognize that the wave of loan-repurchase requests represents an added challenge for lenders who already have a stretched balance sheet.
However, Fannie Mae’s position is that the loan-repurchase increases are an economic problem, not an underwriting process issue. Meanwhile, Freddie Mac said it’s in talks with lenders to address the problem through a more customer-focused approach.
Executives from both government-sponsored enterprises (GSEs) participated in a session on Tuesday morning during the Mortgage Bankers Association (MBA) Secondary and Capital Markets Conference and Expo in New York.
“I totally understand where the question is coming from. But I don’t think this is really a question about the process. We have not changed our approach or process,” Devang Doshi, senior vice president of capital markets at Fannie Mae, said.
“This is really an issue around economics. And the reason I say that is when you think about the repurchase requests made, let’s say from the latter half of last year, even the middle of last year, that reference collateral was largely maybe underwritten in the COVID environment,” Doshi added.
The Fed has increased interest rates, and mortgage rates have had the tightest financial conditions since the 1970s, Doshi said. Ultimately, loans that lenders underwrote at higher coupons are now down 20 basis points.
“That’s just the duration. That is not a reflection of the underlying characteristic,” Doshi said.
Since 2019, Fannie Mae has been between 20 and 40 basis points per purchase request rate, which varies lender by lender, Doshi said. The rate is estimated by dividing the number of repurchase requests by the volume over the last 12 months.
“We’re on a slightly higher range because we’re now in a purchase market as a numerator and denominator effect in that calculation,” Doshi said. “Again, as we move through the course of time, and we move away from this COVID-era lows, the economics become less of a burden.”
Doshi noted that 80% of the repurchase requests in January were from the 2022 and 2023 vintage. It’s now at 86.5% to 87%.
Client experience
Kevin Kauffman, vice president of single-family client engagement at Freddie Mac, agreed that volumes in 2020 and 2021 were massive and led to more quality control defects and repurchases.
However, according to Kauffman, “at the end of the day, risk management to this organization, to this industry, to all of us combined, this is a mutual responsibility, right?”
“There is no doubt that there are those that have defects that are real defects, but how do we minimize the noise from reality?” Kauffman asked.
Freddie Mac engaged with about a dozen lenders to identify the pain points when working with the enterprise.
“I think what we’ve seen over this even short period of time is that those types of engagements have led to a better outcome,” Kauffman said. “We’re not there yet as an industry. But I think in the end, I’m going to continue to say it’s a mutual responsibility of the industry to manage our risk.”
“We believe that we’re really close to making some changes based upon our interaction with you in regards to how we get to this problem,” Kauffman said.
HousingWire reported in early May that there is a concern among IMBs that Fannie and Freddie are being too aggressive in pursuing the repurchase option on loans with minor underwriting defects that could be cured far short of a draconian buyback demand.
An executive with the MBA confirmed the industry group is currently in discussions with the agencies over that concern.
