As part of its strategy to eliminate some of the uncertainty associated with repurchases, Fannie Mae is implementing steps to make it easier for seller-servicers to resolve rescinded mortgage insurance.
In May, the Washington, D.C.-based company outlined changes to its repurchase requirements in Selling Guide Announcement SEL-2014-05.
The updates were part of a new representation and warranty framework launched at the direction of the Federal Housing Finance Agency in September 2012.
In the May 2014 announcement, Fannie said that repurchase requests will no longer be automatic in the event that mortgage insurance is rescinded.
Following through on that plan, Fannie issued Servicing Guide Announcement SVC-2014-13 on Tuesday providing more details on the repurchase alternative of mortgage insurance stand-in.
The stand-in can be utilized when the mortgage insurer rescinds coverage, and it leaves the lender on the hook only for the benefit that would have been payable under the originally policy if the loan liquidates.
In order to avoid an immediate repurchase demand when coverage is rescinded, the responsible party must meet Fannie’s eligibility criteria.
Another requirement for the stand-in option is that there are no other defects on the loan for which coverage was rescinded. The responsible party must cure all identified loan defects during the required cure period.
If the responsible party and the loan meet these requirements, then the lender will be offered one of two agreements for an MI stand-in based on Fannie’s evaluation of the responsible party.
The first is an indemnification agreement in which the responsible party agrees to immediately pay Fannie Mae the stand-in amount after liquidation, and the second is a pledge and security agreement where the responsible party agrees to immediately post required liquid assets..
Once the responsible party is notified by Fannie that the loan has been selected for a quality control review, it has 30 days to submit the full loan file and supporting mortgage insurance documentation — including the rescission letter, all communication related to the rescission and the mortgage insurance company’s investigation reports.
If Fannie determines the loan is eligible for stand-in, then it will send the responsible party a letter indicating stand-in eligibility as an alternative to repurchase.
The responsible party then has 60 days to notify Fannie whether it prefers to utilize a stand-in, repurchase the loan or provide proof that coverage has been reinstated.
In the event that a stand-in is desired, Fannie will provide on of the two agreements.
But if Fannie identifies other defects during the full file quality control review that aren’t cured within the required period, the loan won’t be eligible for stand-in.
In addition, eligibility will be voided if the responsible party doesn’t respond in or submit all of the required documents within Fannie’s time frame.
“If the responsible party cures the defects that made the mortgage loan ineligible for the MI stand-in, Fannie Mae will review the mortgage loan and responsible party for this alternative to repurchase,” the notice stated.
The new policy impacts loans acquired by Fannie on or after July 1.
