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May 09, 2016

Single-Family Loan Repurchases Trending Down

Chris Mock
Chris Mock, VP Single-Family Quality Control

One of the industry's best-kept secrets is the steady decline in mortgage repurchase activity, at least for the mortgages Freddie Mac buys.

Mortgage repurchases are a last resort if a quality control review finds a mortgage didn't meet our underwriting requirements at the time of sale. It's a last resort because the lender is given multiple opportunities to address a problem, such as providing missing information from the loan file, before a repurchase is considered.

As the chart below makes clear, the number of loans Freddie Mac has required seller/servicers to repurchase has come down dramatically over the last four years. Completed repurchases have dropped from a peak of $4.2 billion in 2010 to about $400 million in 2015, a 95 percent drop.

This downward repurchase trend is good for seller/servicers, Freddie Mac and taxpayers. It's also good for borrowers. When seller/servicers sell Freddie Mac loans with greater certainty, they are more likely to make loans that take advantage of the full extent of our credit box.

A caveat about tracking mortgage repurchase activity. Many repurchases in a given year relate to loans originated in earlier years and repurchases of large groups of legacy loans were avoided as a result of some post-crisis settlement agreements. That said, the trend is clearly positive and there are several reasons that explain the chart's direction.

First, many seller/servicers have made significant investments to improve their loan manufacturing process by using new tools, technology and processes. We expect this trend to continue as we begin to phase in Loan Advisor SuiteSM later this summer. Loan Advisor Suite is a flexible, end-to-end loan delivery solution we designed with our customers to increase lender efficiency and provide earlier insight into representation and warranty relief.

A second reason is that, working with seller/servicers and the Federal Housing Finance Agency, Freddie Mac made improvements to its representation and warranty framework four separate times in as many years. These changes help ensure that the new representation and warranty framework is more transparent to seller/servicers and gives them greater certainty in the loans they sell to us.

The most recent change to the framework provides seller/servicers contesting certain alleged loan-level representation and warranty breaches a more extensive appeals process, plus an independent dispute resolution process.

Year-End Single Family Repurchase Requests

Source: Freddie Mac SEC Reports

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