Fannie Mae, the largest provider of residential credit in the US, said it is intensifying efforts to help mortgage lenders identify defective loans amidst signs that mortgage quality in the US is falling short.
The government-backed mortgage firm will halt more home loans with defect from being sold into its bond program to help lenders reduce their liability.
The move follows Fannie Mae and Freddie Mac’s demand that mortgage lenders repurchase billions of dollars in loans that the two firms bought, claiming that the loans failed to meet standards. The tension has caused confusion among many lenders over what may cause a repurchase request and tightening up on needed documents from borrowers.
Four years after the US housing boom, many lenders have yet to improve the quality of their loans sold to Fannie Mae, the firm said in a newsletter.
“Fannie Mae has seen less improvement than might be expected, which remains a big concern for us,” said Steve Spies, vice-president in Fannie Mae’s single-family mortgage business.
Mr. Spies said the overall creditworthiness in the nation has improved, but the evaluation of underwriting data and accuracy of data “remains a challenge for many lenders.”
The firm’s “loan quality initiative” will enhance its reliance on the warranties and representations that mortgage lenders offer when selling loans, he said, adding the warranties and representations often lead to the discovery of errors only after the loans have been sold to Fannie Mae.
He noted that the loans quality initiative “will facilitate early discovery, and help lenders have more certainty about repurchase exposure.”