On Tuesday, February 2, the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac introduced the Independent Dispute Resolution (IDR) process to help resolve mortgage repurchase related issues. Though the IDR does not annex the Enterprises’ authority over appeals, it allows lenders to approach an independent third-party entity with loan disputes that remain unresolved after undergoing an appeals process. The IDR is meant to ensure faster resolution of such loan breaches and avoid prolongation of the process.
Fannie Mae and Freddie Mac (the Enterprises) have a Representations and Warranties Framework that guarantees compliance to “selling and servicing guides, including underwriting and documentations,” for all loans sold to the Enterprises. When a loan is incompliant, the Enterprises may need to file a request to repurchase. The uncertainty attached to loan compliance leaves lenders in the dark and affects lending costs and loan rates. This negatively impacts the borrower’s access to these loans.
The Representations and Warranties Framework was established to provide more “transparency and certainty” by making a loan’s compliance status clear. Many improvements have been made to this Framework since 2013, including the flexibility to make adjustments allowing up to two payment defaults of 30 days or less during the first 36 months after purchasing the loan.
The IDR was introduced as a final improvement to the Framework and was conceived by the Enterprises and the FHFA in collaboration with mortgage lenders. The neutral entity involved can verify a particular loan and decide if it has to be submitted for repurchase, providing a faster resolution to issues.
The new updates are applicable to loans purchased from the Enterprises, dated on or after January 1, 2016. These changes to the Framework will enhance clarity and assurance for lenders and eventually build a sustainable market with improved access to loans offered by the FHFA and the Enterprises.