US home loan quality still lacking, Fannie Mae says

By Al Yoon

NEW YORK, Oct 13 (BestGrowthStock) – Fannie Mae, the largest
provider of U.S. residential credit, on Wednesday said it is
stepping up efforts to help lenders identify defective loans
amid signs quality is falling short.

The government-backed company said it will stop more loans
with defects from being sold into its guaranteed bond program
under an initiative to help lenders reduce their liability.

The move follows Fannie Mae and rival Freddie Mac’s demand
that lenders repurchase billions of dollars in loans bought by
the two companies. The companies claim the loans failed to meet
standards. This tension has caused confusion among lenders over
what may cause a repurchase request and a tightening up on
required documents provided by consumers.

Four years after the peak of the housing boom, lenders have
not adequately improved the loans sold to Fannie Mae, which
together with Freddie Mac funds the lion’s share of mortgages
originated, Fannie Mae said in a quarterly newsletter.

“Fannie Mae has seen less improvement than might be
expected, which remains a big concern for us,” Steve Spies, a
vice president in Fannie Mae’s single-family mortgage business,
said in the newsletter.

Spies said that overall creditworthiness has improved, but
the accuracy of data and evaluation of underwriting data
“remain a challenge for many lenders.”

Fannie Mae’s “loan quality initiative” will supplement its
reliance on the representations and warranties that lenders
offer when selling loans, Spies said. Representations and
warranties often lead to discovery of errors only after the
loans have been sold to Fannie Mae, he said.

The loan quality initiative “will facilitate early
discovery, and help lenders have more certainty about
repurchase exposure,” he said.

Among checks, Fannie Mae beginning Jan. 3 will change some
of its “warning edits” to “fatal edits” that will stop its
purchase of a loan. The fatal edits include when the loan’s
expected loan-to-value ratio varies from what is delivered.

US home loan quality still lacking, Fannie Mae says