Details on Quality Control Changes and Processes Provided in Guide Bulletin 2012-22 and Industry Letter
October 19, 2012
In the September 11, 2012, Single-Family Seller/Servicer Guide (Guide) Bulletin 2012-18, we announced a new selling representations and warranty framework that will provide you with more certainty and transparency when selling mortgages to us. Integral to your ability to be relieved from enforcement of certain selling representation and warranty responsibilities is incorporating the principles of our quality control (QC) processes and delivering quality mortgages.
To provide you with a clearer understanding and more transparency into some of our QC and enforcement processes and practices, today we are issuing an Industry Letter. As a result of your feedback to the September 11, 2012, Industry Letter on Freddie Mac’s QC process, today’s letter provides more specific details on some of our QC and enforcement processes and practices as well as QC process changes you can expect as a result of the new framework.
Today, we also are issuing Guide Bulletin 2012-22 that announces updates to our QC time line and enforcement requirements, including some that were previewed in the September 11, 2012, Industry Letter.
These announcements are part of the continued collaboration between Freddie Mac and Fannie Mae at the direction of the Federal Housing Finance Agency.
Industry Letter on Quality Control and Enforcement Practices
Today’s Industry Letter includes details that are being broadly disseminated for the first time and we encourage you to read through the letter to better understand some of our QC and enforcement processes and practices, including QC sampling, mortgage file reviews, repurchase and appeals, possible options for repurchase alternatives, and factors for determining which repurchase alternative we may offer. While most of our current processes will not change with the new representation and warranty framework, there are some areas that will see changes starting in January 2013. These include:
- Random and targeted sampling size – We do not anticipate making any material changes to our performing loan random sample size. We will begin utilizing new technology and data-gathering tools to analyze loan-level data for mortgages sold under the new representation and warranty framework. As a result, you may begin seeing an increase in your performing loan targeted sample size in January 2013. The sample size is directly affected by your loan quality and volume.
- File request time lines for performing loan reviews – As indicated in the September 11, 2012, Industry Letter, with the new representation and warranty framework, you can expect to receive notices of deficiencies closer to the loan origination date as a result of our requesting your performing loan files closer to the mortgage purchase date.
QC Review Practices
- Subsequent mortgage file reviews process – Loans that meet the new representation and warranty framework payment history requirements are not likely to be reviewed again. However, if Freddie Mac obtains new information which indicates the mortgage may violate one of the life-of-loan selling representation and warranties, Freddie Mac may request an additional QC review. Refer to our September 11 article on the new representation and warranty framework exclusions for more information.
- Repurchase and appeal process – Today’s Guide Bulletin 2012-22 announces changes to the processes for filing appeals, including a second appeal option.
- Changes to QC feedback – The current feedback program, which has been available to most Seller/Servicers, is being discontinued and will no longer be offered as an alternative to repurchase. We will be providing Seller/Servicers with quality control results information that is similar to what had been provided through the feedback program, as well as flexibility in repurchase alternatives.
Guide Bulletin 2012-22 on Quality Control Processes and Requirements
We are providing specificity to time line requirements for:
- Delivering requested mortgage files for post-funding QC review.
- Remitting repurchase funds for repurchase requests.
- Submitting appeals and follow-up appeals.
Alternatives to Repurchase
To provide you with greater flexibility and the possibility to avoid repurchases, you may be offered a repurchase alternative. Review today’s Industry Letter for details on:
- Repurchase alternatives you may be offered (e.g., recourse, indemnification, loss reimbursement).
- Factors that may be considered in determining whether an alternative to repurchase is available (e.g., type of loan defect, Seller/Servicer’s financial viability).
Automatic Repurchase Triggers
We will not be implementing the requirement announced in Guide Bulletin 2012-18 to issue an automatic repurchase if no scheduled payments were made for the first three months after the Freddie Mac settlement date.
Changes announced in Guide Bulletin 2012-22 will be effective on or after January 1, 2013.
For More Information
- Read the October 19 Quality Control Industry Letter and Guide Bulletin 2012-22 on our Quality Control processes and upcoming requirement changes.
- Review the September 11, 2012, Guide Bulletin 2012-18, Industry Letter, and article on the new representation and warranty framework and QC practices.
- Visit our New Freddie Mac Representation and Warranty Framework Web page for details on the new framework.
- Register for the New Representation and Warranty Framework webinar and updated Freddie Mac Quality Control webinar on the Learning Center.
- Contact your Freddie Mac representative or 800-FREDDIE.