With changes in GSE requirements such as Fannie Mae's LQI, Freddie Mac's LQA and increased scrutiny from investors and regulators, loan repurchase and compliance risks are at an all-time high. The problem of misrepresented liabilities is a growing concern, as noted in Fannie Mae's Fraud Findings Statistics that are reported annually. In fact, the Federal Housing Finance Agency (FHFA) released guidelines for representation and warranties on loans sold after the first of January 2013 to "clarify lenders' repurchase exposure and liability and move the focus of quality control reviews from the time a loan defaults to the time the loan is delivered to the GSEs."
Additionally, the Dodd-Frank Mortgage Reform rules set forth by the Consumer Financial Protection Bureau (CFPB) implements ability to repay (ATR) guidelines for mortgage lenders. For loans that will be sold into the secondary market, Qualified Mortgage standards must be met. The QM rule presents more strict underwriting standards to ensure a consumer's ability to repay based on a 43% DTI ratio. The presence of new and undisclosed debts during the underwriting period can lead to inaccurate DTI calculations, and delivery of non-QM loans may lead to repurchase demands and litigation by consumers in the future.
Both the secondary market and regulators are watching, and it's not just non-performing loans from big-name lenders that are under scrutiny. Government-sponsored entities have ramped up their review of performing loans from small and regional lenders as well.
The burden of staying up to date on a myriad of quickly evolving regulatory and government guidelines, requirements and initiatives can be tough, if not overwhelming.
Regulatory insights and updates
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