Mitigating Loan Repurchase Risks with New FHFA Alternatives

Whether you’re large or small, lender or servicer, repurchase requests are never welcome.  They involve documentation, process changes, jeopardize licensing, impact investor approval status, and increase expenses, including fines, borrower remediation, and more. In these scenarios, the best defense is a strong offense that includes sophisticated automation designed to document and display all activities and critical milestones, along with adding the flexibility and transparency needed to facilitate irreproachable responsiveness. We all know how important it is to reply to investors rapidly and efficiently when handling rebuttals.  Now, there is a new option that can be added to this pre-emptive offensive arsenal, repurchase alternatives recently announced by the Federal Housing Finance Agency (FHFA)

An Alternative to Loan Repurchase

Using a targeted pilot program launched by Freddie Mac as the basis for further expansion, the FHFA’s updated loan repurchase policy allows approved lenders to choose a fee-based alternative to repurchase on an annual basis or a “fee only” option that is exercised on a single defective loan in lieu of repurchase.  This expanded offering will help minimize organizational stress by addressing loan defects at the onset of sample audit findings, versus letting defects linger until they trigger a repurchase.  Eligible loans must still be performing with access to this alternative beginning in Q1 of 2025.  According to FHFA’s news release, “This offering will better align the repurchase alternative offerings across the Enterprises.”

Avoiding Repurchase Involves Workflow Technology

The overall goal of the pilot and launch expansion is to incentivize higher quality loans and reduce loan defects as well as the cost and risk burdens associated with repurchase.  By using fee-based alternatives to repurchase, coupled with dynamic auditable workflow software, sellers can avoid the time-consuming rebuttal process and significantly reduce the probability of buyback.  A fee schedule is used by Freddie Mac based on the seller’s volume of loan defects, reflected in terms of their quarterly non-acceptable quality (NAQ) rate.  Sellers with a NAQ of less than 2%, as well as sellers that are too small to generate a ‘statistically significant’ NAQ, may not be required to pay a fee or may be assigned a ‘representative NAQ rate,’ making this a viable option for lenders of every size.

Eligibility, Repurchase & Recourse Benefits

Most defects that are currently sampled as a part of Single-Family Quality Control QC reviews will be eligible for this repurchase alternative.  Although this option will clearly have benefits for servicers down the road, it is not currently available on loans sampled for Servicing QC. The representation and warranty relief framework remains the same, as does the repurchase appeal process.  However, in the event that an eligible loan becomes delinquent, immediate repurchase will be imposed. 

For non-participating sellers, the recourse remedy fee has been reduced by more than 50 percent and can now be exercised on collateral valuation defects.  These additional changes will help provide monetary relief for all servicers, and they are available for loans closing on or after January 1, 2025.

Maximizing Your Repurchase Options

Freddie Mac sellers saw a 29.1% rise in repurchases for the first quarter of this year to $430 million, whereas Fannie Mae repurchases, albeit still high, declined by 27.7% year over year to $268.5 million, with buybacks dropping 0.8%.  Where do you stand in terms of repurchase?  More than ever, your organization needs the capability to exercise new options so you can avoid repurchases and costly buybacks. Achieving the full benefit of these new processes takes an automated approach that centralizes real-time software views.  These views need to track exceptions, defect trends, and critical milestones, supporting early detection and facilitating remediation before having to pay fees on a growing number of impacted loans. 

CLARIFIRE® delivers the software you need to expand repurchase avoidance, displaying critical data to the right role at the right time. Process automation is a pre-requisite to readily embrace new and expanded repurchase options, requirements, and impacted processes. More importantly, loan defects can be internally audited, monitored, and mitigated, and future exceptions eradicated with the sophisticated workflow automation that CLARIFIRE is known for.

Loan volume, resources, and requirements continue to fluctuate, sometimes wildly, as changes in interest rates, the economy, and housing remain volatile. CLARIFIRE® is inherently a seamless and transparent automated process framework that supports your unique needs no matter what the scale or impact of issues challenging our industry. Minimize loan defects and prevent repurchases before you need options. Experience intelligent, next-generation workflow automation that drives proven business rule management and complex program eligibility determination with CLARIFIRE®. Leveraging the benefits of artificial intelligence and advanced data analysis, controls, and governance, we help you minimize repurchase risk and associated expenses.  Contact us directly at eClarifire.com to discover what we mean when we say CLARIFIRE® is truly BRIGHTER AUTOMATION®

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Jane Mason | @janemasonceo

Jane has applied her vast experience (over 25 years) operating process-driven businesses to successfully redefine client-focused service. Jane has worked with expert programmers to apply cutting-edge web-based technology to automate complex processes in industries such as Financial Services, Healthcare and enterprise workflow. Her vision confirms Clarifire's trajectory as a successful, scaling, Software-as-a-Service (SaaS) provider. A University of South Florida graduate, Jane has received many awards related to her entrepreneurial skills.

 

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