Exclusions to the New Representation and Warranty Relief Framework
September 11, 2012
In Single-Family Seller/Servicer Guide (Guide) Bulletin 2012-18, we announced a new representation and warranty framework. Under the new framework, if a mortgage meets certain eligibility requirements and an acceptable borrower payment history has been established, we will not exercise our remedies, including the issuance of repurchase requests, for Seller/Servicer breaches of certain selling representation and warranty obligations. This new approach will provide you with more certainty and transparency in doing business with Freddie Mac by addressing concerns around loan repurchase risk.
It is important that you also are aware of the exclusions outlined in Bulletin 2012-18, which represent those matters for which you remain accountable for the life of the loan. This means that regardless of borrower payment history on the mortgage, we will exercise our remedies, including the issuance of a repurchase request, if there are breaches related in the following matters:
- Mortgage eligibility under the Freddie Mac Charter
Mortgages must be eligible for purchase under the Freddie Mac Charter. Our Charter requires that:
- The property must be located within any of the 50 states, District of Columbia, Guam, Puerto Rico, or the U.S. Virgin Islands.
- The original loan amount must not exceed the maximum loan limits.
- The property is not a vacant lot or property primarily used for agriculture, farming, or commercial enterprise.
- The property must be residential in nature, consisting of 1-4 dwelling units.
- Any mortgage that exceeds 80 percent of the value of the property at the time of Freddie Mac’s purchase must (i) have mortgage insurance that meets the applicable Guide requirements, (ii) be sold with recourse, within the meaning of Guide Section 11.10(a), or (iii) be sold on a participation basis.
- Misstatements, misrepresentations, omissions, and data inaccuracies
- A mortgage must not have a misstatement, misrepresentation, or omission involving two or more loans or related transactions and made by two or more specified parties as described in more detail in Guide Bulletin 2012-18. The Seller’s knowledge of the issue is irrelevant.
- A mortgage must not have any Uniform Loan Delivery Dataset (ULDD) data inaccuracy, as described in more detail in Guide Bulletin 2012-18.
It is important to note that prior to satisfying the acceptable borrower payment history requirement, mortgages are subject to our standard requirements related to misrepresentation, misstatements and omissions as described in the Guide.
- Additional life-of-loan representations and warranties
The representation and warranty obligations for following requirements are also not included in the relief provided by the new framework:
- First lien position and clear titles
- Compliance with applicable laws
- Mortgage product eligibility
Review Guide Bulletin 2012-18 for illustrative examples of the exclusions outlined above.
Ensuring Loan Eligibility Prior to Your Sale to Freddie Mac
We require you to have strong underwriting processes and, as necessary, we will help you develop action plans to improve underwriting quality.
We also encourage you to leverage Loan Prospector®, other risk assessment tools, plus the data you submit under ULDD and Uniform Appraisal Dataset (UAD), to assist in detecting and correcting loan deficiencies so you can be more confident about the quality of the loans you sell to Freddie Mac.
For More Information
To get more details about the exclusions and the new representation and warranty framework: