FHFA, Fannie Mae, and Freddie Mac Announce Independent Dispute Resolution Program
By Anna DeSimone
February 2, 2016, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac have implemented an independent dispute resolution (IDR) process for resolving repurchase disputes. The IDR process is the final piece of the Representation and Warranty Framework for Lenders and is available on loans delivered to Fannie Mae and Freddie Mac on or after Jan. 1, 2016.
IDR is specifically designed to address alleged loan-level breaches of selling representations or warranties that remain unresolved after completion of the appeals process. The IDR process will not replace the Enterprises’ current quality control and related appeal processes, but will offer a neutral third party to resolve demands that remain unresolved after the appeal and escalation processes have been exhausted.
Summary of Fannie Mae Announcement
The IDR process will be available to all active lenders unless they
- have been suspended, disqualified, terminated, or formally notified as being in default of the terms of their contract
- have failed to timely comply with a demand after the time for challenging a demand has expired; or
- are in default of a prior IDR award or have any outstanding amount past due to the IDR administrator.
The IDR process will include the following components:
- prescribed timelines for initiating the process, selecting a neutral arbitrator, and conducting administrative and planning conference calls;
- standards for case packages that must be prepared;
- an option for each party to use legal counsel and subject matter experts;
- a hearing with a neutral arbitrator and representatives from the lender and Fannie Mae conducted by telephone or video conference;
- a process for creating a collective proceeding for a group of mortgage loans that involve similar disputes (“expanded proceedings”) with the agreement of Fannie Mae and the lender;
- written award and brief opinion provided by the arbitrator; and
- reimbursement for certain costs and expenses by the non-prevailing party to the prevailing party.
The arbitrator rather than Fannie Mae will be making the final determination about whether a defect existed at the time IDR begins. The written award from the arbitrator will be final and binding upon and enforceable against the non-prevailing parties.In addition to resolution of the demand, the party that does not prevail at the hearing will be responsible for paying the prevailing party a “Cost and Fee Award” in the amount of 10% of the unpaid principal balance of the related mortgage loan at the time the loan was acquired. If the parties mutually agree to expanded proceedings to cover multiple mortgage loans, then the parties will negotiate an appropriate Cost and Fees Award before the IDR process begins.
Summary of Freddie Mac Bulletin
The IDR process will be available to all active Seller/Servicers. Seller/Servicers that have been suspended, disqualified or terminated are ineligible to participate in IDR. In addition, the IDR process will not be available to Seller/Servicers that have:
- Failed to timely comply with an IDR award related to any Mortgage (or Mortgages) that have been through the IDR process
- Failed to timely comply with any remedy request after the time for challenging the remedy request through the appeals and escalation processes has expired, or
- Any outstanding amount past due to the IDR administrator
The IDR process includes the following components:
- Prescribed timelines for initiating the process, selecting a neutral arbitrator and conducting administrative and planning conference calls
- Standards for case packages that must be prepared
- An option for each party to use legal counsel and subject matter experts
- A hearing with an arbitrator and representatives from the Seller/Servicer and Freddie Mac conducted by telephone or video conference
- A process for creating a collective proceeding for a group of Mortgages that involve similar disputes (“expanded proceedings”) with the agreement of Freddie Mac and the Seller/Servicer
- Written award and brief opinion provided by the arbitrator; and
- Reimbursement for certain costs and expenses by the non-prevailing party to the prevailing party
The arbitrator will be making the final determination about whether a defect existed at the time IDR commenced. The written award from the arbitrator will be final and binding upon and enforceable against the parties.
In addition to resolution of the demand, the party that does not prevail at the hearing will be responsible for paying the prevailing party a “Cost and Fee Award” in the amount of 10% of the unpaid principal balance of the related Mortgage at the time the Mortgage was acquired. If the parties mutually agree to expanded proceedings to cover multiple Mortgages, then the parties will negotiate an appropriate Cost and Fees Award before the IDR process commences.About the Author
Anna DeSimone is President and Founder of Bankers Advisory and Principal of CliftonLarsonAllen LLP. She can be reached at Anna@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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