Fannie Mae Updates Selling Reps Framework and Compliance with Laws
By Anna DeSimone, President
On November 20, 2014, Fannie Mae issued Selling Guide Announcement SEL-2014-14. With this Announcement, Fannie Mae, jointly with Freddie Mac and at the direction of the Federal Housing Finance Agency (FHFA), is announcing a number of significant enhancements to the selling representations and warranties framework introduced in Announcement SEL-2012-08, New Lender Selling Representations and Warranties Framework (version 1 of the framework), and updated earlier this year in Announcement SEL- 2014-05, Lender Selling Representations and Warranties Framework Updates (version 2 of the framework). These changes relate to the framework’s life of loan representations and warranties for misstatements, misrepresentations, omissions, and data inaccuracies.
In addition to the changes to the framework, Fannie Mae is also updating the section of the Selling Guide related to compliance with laws in order to provide lenders with more certainty and transparency regarding when and how Fannie Mae will be able to enforce remedies for compliance with laws violations.
Effective Dates
The changes to the framework are effective retroactively for whole loans purchased, and mortgage loans delivered into MBS with pool issue dates, on and after January 1, 2013, except that these changes do not apply to any loans for which Fannie Mae has issued a repurchase request prior to November 20, 2014. The changes to the Selling Guide provisions regarding compliance with laws are effective for whole loans purchased on and after November 20, 2014, and for mortgage loans delivered into MBS with pool issue dates on and after December 1, 2014.
It is Fannie Mae’s expectation that any future modifications to the framework will apply prospectively.
Background
Under the framework, lenders are relieved of certain selling representations and warranties set forth in Subparts B1-B5 of the Selling Guide that relate to the underwriting of the borrower, the property, or the project for loans delivered to Fannie Mae that have achieved an acceptable payment history or a successful full-file quality control review by Fannie Mae. Under the framework, lenders are not relieved from Fannie Mae’s enforcement of its representations and warranties with respect to the following matters (“life of loan representations and warranties”), even if the issues are referenced in Subparts B1-B5 of the Selling Guide:
Charter Matters;
Misstatements, Misrepresentations, and Omissions;
Data Inaccuracies;
Clear Title/First-Lien Enforceability;
Compliance with Laws and Responsible Lending Practices; and
Single-Family Mortgage Product Eligibility.
This article covers the changes related to Compliance and Responsible Lending. Please refer to the Fannie Mae or Freddie Mac announcements concerning the remaining topics.
Other Changes to the Selling Guide – Compliance with Laws
In addition to the above changes to the framework, Fannie Mae is also updating the Selling Guide, A3-2-01, Compliance with Laws, which among other things requires lenders to comply with applicable federal, state and local laws. These changes are effective for whole loans purchased on and after November 20, 2014, and for mortgage loans delivered into MBS with pool issue dates on and after December 1, 2014, without regard to whether the loan has obtained relief under the framework.
Under the current Selling Guide provision, Fannie Mae may enforce a remedy for all lender violations of applicable federal, state and local laws that may have a material effect on Fannie Mae. To provide more transparency and certainty to lenders, Fannie Mae is limiting those situations for which it may enforce a repurchase to those situations in which:
1. the lender’s failure to comply could be expected to impair Fannie Mae’s or its servicer’s ability to enforce the note or mortgage;
2. the lender’s failure to comply could be expected to impose assignee liability on Fannie Mae; or
3. the loan is found to have been in violation of, or if Fannie Mae has made a finding, based on the facts available to Fannie Mae, that a violation may have occurred, of one or more of the following laws or related regulations:
• Office of Foreign Assets Control (OFAC) of the Department of Treasury laws and regulations;
• Fair Housing Act;
• Anti-discrimination provisions of the Equal Credit Opportunity Act (ECOA);
• Unfair, Deceptive or Abusive Acts or Practices under federal and state law (UDAAP); or
• Securities Exchange Act of 1934.
With respect to UDAAP, Fannie Mae will take into consideration published federal and state announcements of interpretations as well as all published judicial and administrative decisions and will not enforce a repurchase if the matter can be cured by remediation to the injured party and the lender makes such remediation. However, three or more years after the acquisition (or MBS pool issue date) of a loan, Fannie Mae may not seek repurchase on UDAAP grounds regarding a specific practice unless a lender self-reports or a federal or state enforcement authority has indicated, asserted, or claimed that such practice violates or may violate UDAAP, or a federal or state court has held that a specific practice violates UDAAP.
A repurchase request based on a compliance with law violation will include supporting facts and findings made by Fannie Mae in the course of considering the facts and circumstances before it. Fannie Mae’s determination that a violation has occurred must be consistent with the facts and circumstances provided by the lender and any other information obtained by Fannie Mae as part of its evaluation of the situation.
If Fannie Mae issues a repurchase request in connection with a failure to comply with laws when there is pending litigation underway involving that same issue or a government agency with authority to make a determination regarding the issue has publicly stated that it is reviewing the issue, the lender will not be required to repurchase the loan until 30 days after the litigation has been dismissed, settled, or concluded at trial in an adjudication or the government agency has made a final determination (collectively, the “Resolution”). After the Resolution, the lender may request that Fannie Mae review the appropriateness of the repurchase request in light of the Resolution, and Fannie Mae will withdraw the repurchase request where appropriate.
The lender is obligated to indemnify Fannie Mae for losses, judgments, damages, claims, costs, expenses, legal actions, and legal fees related to any claim of non-compliance with laws.
As previously announced, Fannie Mae will not issue a repurchase request based on violations of the ability to repay provisions under the Truth in Lending Act (ATR) unless a court or regulator concludes the loan did not comply with ATR.
Responsible Lending Practices
The provisions in the Selling Guide that address responsible lending practices also reflect other underwriting practices that may overlap with the substance of representations and warranties covered in Subparts B1-B5 of the Selling Guide that are subject to relief. In the interest of clarity, Fannie Mae is revising A3-2-02, Responsible Lending Practices, to reflect that the portion of A3-2-02 entitled “Underwriting Standards” is relieved under the representation and warranty framework (subject to applicable life of loan exclusions). However, the framework does not grant lenders relief from the first part of A3-2-02 relating to Fannie Mae’s responsible lending practices.
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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