Automatic Repurchase of EPD’s Recalled
The 9/11/12 bulletin released a new requirement for automatic repurchase request for any mortgage for which no scheduled payments were made for the first three months after the Freddie Mac settlement date.  After further review, Freddie Mac determined that this requirement will not be implemented.  The enterprise will instead continue its current practice of rigorously reviewing any mortgage with an early payment default.

Freddie Mac’s QC Process 
Under its core performing loan sample process and strategy, Freddie Mac selects both random and targeted samples of loans for quality control.  The targeted sample consists of two categories: loan-level and lender-level.  The enterprise anticipates that the non-performing loan sample process and review strategy will remain as currently communicated.  However, as Freddie Mac consumes and analyzes more loan data, sellers can expect to see adjustments in the level of quality control files requested and reviewed by Freddie Mac for performing loans as early as April 2013.
The loan samples are reviewed by quality control underwriters who analyze loans on a comprehensive basis by evaluating the entirety of the loan file and the applicable purchase documents.  The primary focus of the review is to identify significant underwriting deficiencies.

Freddie Mac’s comprehensive review includes consideration of the borrower’s ability to repay the loan and an in-depth analysis of the credit and capacity of the borrower, as well as the underlying collateral. Where certain characteristics are deemed deficient, when considered with other features, the loan may be considered acceptable.  If, in connection with a quality control review of a performing mortgage that is undertaken prior to the borrower meeting the payment history requirements of the new representation and warranty framework, it is concluded that the mortgage is not acceptable quality, Freddie Mac will communicate to the Seller/Servicer whether the mortgage will require action and/or will continue to be eligible for representation and warranty relief going forward.

Freddie Mac Time-lines
Freddie Mac will request files for performing loan reviews between 30 and 120 days after mortgage purchase and anticipates that the vast majority of file requests will occur within the 30-day time frame.  Freddie Mac’s goal is to complete performing loan file reviews and provide Seller/Servicers with notice of any deficiencies within 60 – 90 days of receipt of the entire mortgage file, with most loan file reviews occurring within the 60-day time frame.  This will result in Seller/Servicers receiving notices of any deficiencies closer to the origination date.

Enforcement Practices – Repurchase and Appeal Process
Based on the quality control review of defective loans, Freddie Mac has outlined the request and appeal process which is partially summarized below:
 
Repurchase requests.   When Freddie Mac identifies a defective mortgage, it issues a repurchase letter, which describes the defects that render the mortgage ineligible for purchase by Freddie Mac.  The defects that would give rise to a repurchase request consist of errors or failures that would have resulted in Freddie Mac’s refusal to purchase the loan at the time of delivery.

Appeal process.   Freddie Mac will continue to maintain a process for Sellers to appeal repurchase requests. Under the appeal process, when Freddie Mac issues a repurchase letter for a particular Mortgage, the Seller is entitled to review and respond to the loan-level findings and to provide any required documentation to address the deficiencies identified in the repurchase letter, with the goal of resolving significant deficiencies.

Alternatives to Repurchase 
In certain circumstances, Freddie Mac may provide the Seller/Servicer with an alternative to the immediate repurchase of the identified mortgage.  In each such case, Freddie Mac will notify the Seller/Servicer of the type and terms of the repurchase alternative.  The alternatives may include any one or more of the following, as determined by Freddie Mac in its sole discretion:

— An agreement by the Seller/Servicer to provide recourse for the life of the loan or for some other specified time period

— Recourse as described above, with respect to which the Seller/Servicer’s obligation is secured by a specified collateral account

— An agreement by the Seller/Servicer to indemnify, defend and hold harmless Freddie Mac from any losses, costs, claims, actions, damages, liabilities, judgments, counterclaims or defenses to which Freddie Mac may become subject relating to the mortgage

— Indemnification as described above, with respect to which the Seller/Servicer’s obligation is secured by a specified collateral account

— An agreement between Freddie Mac and the Seller/Servicer to each pay a specified proportion of the losses that have arisen or may arise in the future relating to the mortgage

— An agreement by the Seller/Servicer to reimburse Freddie Mac for specified losses relating to the mortgage

— The assessment by Freddie Mac and payment by the Seller/Servicer of a guarantee fee adjustment or an additional delivery fee with respect to the mortgage

Discontinuation of Feedback Program
The feedback program that Freddie Mac made available to most Seller/Servicers will be discontinued, and will no longer be offered as an alternative to repurchase.  However, the enterprise we will be providing Seller/Servicers with quality control results information that is similar to what had been provided through the feedback program, as well as greater flexibility in repurchase alternatives.

Considerations in Determining Alternative to Repurchase
In determining whether to offer an alternative to repurchase, Freddie Mac considers a number of factors, including the following:

Type of loan defect – Certain types of loan defects cannot be cured, violate internal policies, and/or are deemed egregious, and will not be considered for an alternative to repurchase.  An example of such a mortgage is a loan product, such as an interest-only loan, that Freddie Mac does not currently purchase.  Other examples of loans that will not be offered a repurchase alternative include loans with significant misrepresentation by any party of the transaction, loans that violate the Freddie Mac Charter Act, loans without appropriate mortgage insurance coverage, and loans that violate State or federal lending laws.

Misidentified loans delivered without a fee – Some loans may be considered ineligible because they were misidentified and delivered without the appropriate delivery fee or other pricing adjustment.  In these cases, Freddie Mac may consider offering a pricing adjustment or imposition of a fee as an alternative to repurchase.

Seller/Servicer’s financial viability – Other alternatives to repurchase may be based on the financial viability of the Seller/Servicer as a counterparty, so that a financially sound counterparty might be permitted to provide recourse on the loan, while a financially weaker Seller/Servicer might be required to collateralize the obligation
Other factors – Freddie Mac may also consider other factors, such as: