Freddie Mac Issues New Mortgage Eligibility Criteria
by: Anna DeSimone
July 2, 2013, Freddie Mac issued Industry Letter 2013-06 to all Freddie Mac Sellers entitled “Freddie Mac’s New Mortgage Eligibility Criteria.”
On May 6, 2013, Freddie Mac issued an Industry Letter notifying Sellers of revised requirements as a result of the Consumer Financial Protection Bureau’s (CFPB) final rule on ability to repay and qualified mortgages. The May 6 Industry Letter announced that Freddie Mac would not be permitted to purchase certain Mortgages as a result of a May 2, 2013 Federal Housing Finance Agency (FHFA) directive to Freddie Mac and Fannie Mae.
Please refer to my article dated May 13th Fannie Mae and Freddie Mac will Only Purchase Qualified Mortgages:
http://cdn.s3.webcontentor.com/OFFICE/BANKER01/files/misc_files/130514051801_5.13.13.Fannie.Anna.pdf
As stated in the May 6 Industry Letter, Mortgages with applications received on or after January 10, 2014 must meet the following requirements to be eligible for sale to Freddie Mac:
- Mortgages must be fully amortizing (e.g., the Mortgages must not be interest-only or Mortgages with a potential for negative amortization)
- Mortgages must not have terms in excess of 30 years (e.g., no 40-year fixed-rate Mortgages)
- Mortgages must not have total points and fees in excess of 3% of the total loan amount (or such other applicable limits for low balance Mortgages as specified by the CFPB final rule)
Additionally, Freddie Mac will continue to purchase, under its product eligibility and underwriting requirements set forth in the Single-Family Seller/Servicer Guide (“Guide”), certain Mortgages that are exempt from the ability to repay requirements in the CFPB final rule.
While Freddie Mac has adopted the eligibility criteria listed above in support of the CFPB final rule, Freddie Mac will not be making the final determination of whether a Mortgage complies with the CFPB final rule or a Seller’s designation of a Mortgage’s status under the CFPB final rule.
Mortgages with application dates prior to January 10, 2014 will not be subject to the eligibility criteria above unless otherwise specified in the Guide; at this time, Freddie Mac does not intend to specify an end date by which these Mortgages must be delivered.
For a Mortgage with an application received on or after January 10, 2014, the Seller will be required to represent and warrant that the Mortgage complies with the applicable points and fees limitation.
Freddie Mac is currently assessing potential new delivery data points as part of future Uniform Loan Delivery Dataset (ULDD) data requirements that will help determine if Mortgages meet point and fee thresholds. Potential new ULDD Data Points will help in identifying exempt Mortgages, total loan amount, total points and fees, and annual percentage rate (APR). As with all ULDD data requirement updates, Freddie Mac will provide Sellers with sufficient lead time to update their systems and processes to comply with the new requirements.
Freddie Mac continues to work with FHFA to determine if additional updates to its underwriting, eligibility and/or pricing requirements should be made. The enterprise is working diligently to complete its assessment and anticipate providing:
A Guide Bulletin in late August to provide updates on Freddie Mac’s eligibility requirements for Mortgages subject to the ability to repay rule and possible updates to the representation and warranty framework.
Expected changes related to Mortgage eligibility include:
- Removal of requirements related to Mortgages with 40-year terms
- Revision of current requirements regarding permissible points and fees
- Changes to eligibility of Mortgages with prepayment penalties
- Any necessary changes to Freddie Mac Relief Refinance Mortgages
Additional information by the end of September on:
- Changes to quality control practices/documentation requirements
- How Freddie Mac will test for Seller compliance with the three new Mortgage eligibility requirements
- Enhancements to data-gathering and validation tools to support new requirements
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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