Fannie Mae regulator to clarify when it won't sue
WASHINGTON (MarketWatch) -- The regulator for government-seized mortgage giants Fannie Mae and Freddie Mac said the agency plans Tuesday to provide clarity about when they won't sue banks for bad mortgages that the two firms buy.
"The objective of the new framework is to clarify lenders' repurchase exposure and liability on future deliveries," said Federal Housing Finance Agency acting director Ed DeMarco to the American Mortgage Conference in Raleigh, N.C. "Under this framework, lenders will be relieved of certain repurchase obligations for loans that meet specific payment requirements."
The new framework will be implemented for loans sold or delivered on or after Jan. 1, 2013. It replaces the existing Fannie (FNMA) and Freddie (FMCC) system that relied on monitoring at the back-end of the process after a mortgage defaulted or the borrower missed payments.
DeMarco said that financial institutions will receive "certain" relief from violations of representations and warranties on mortgages sold to the institutions for loans with 36-months of consecutive, on-time payments.
He added that lenders participating in streamlined refinancing programs, including an Obama administration program known as the Home Affordable Refinance Program, will be eligible for relief from repurchase or litigation risk after an "acceptable payment history" of only 12 months after they acquired the loan.
DeMarco's comments come after
The FHFA sued more than a dozen major banks in September 2011 for billions of dollars in losses on over $200 billion in mortgage securities bought by Fannie Mae and Freddie Mac during the housing bubble.
FHFA argues the banks misrepresented the quality of mortgage securities they put together and sold. The FHFA argues that, when it came to mortgage securities purchased by Fannie and Freddie during the years leading up to the financial crisis, the banks failed to meet their due-diligence duties under securities law.
Banks have pulled back dramatically from the housing market. New mortgage activity in the second quarter was down about 30% from where it stood five years ago, according to data compiled by the New York Fed.