Banking Law

We noted earlier this month that Fannie Mae and Freddie Mac were in "full put-back mode." Apparently, Fannie is feeling a tad defensive about the publicity that it's been receiving over this issue. It wants to assure interested parties that it's not taking an electron microscope to the loan files to uncover grounds to force loan repurchases. That's because, according to an article in The American Banker (paid subscription required),  it doesn't have to drill very deeply to find defects in the loan documents and underwriting.

Fannie Mae said Friday that many mortgage lenders are not complying with the most basic underwriting guidelines, such as confirming a borrower's identity or verifying a Social Security number.

Marianne Sullivan, a senior vice president and Fannie's chief risk officer, sent a nine-page letter to lenders announcing a "Loan Quality Initiative" to ensure that loans meet the government-sponsored enterprise's credit and eligibility guidelines.

Sullivan said Fannie analyzed the primary drivers of loan-repurchase requests and has launched the initiative to identify ways to improve compliance with its guidelines. "Many repurchase requests are driven by the fact that the delivered loan does not meet Fannie Mae's eligibility requirements," she wrote.

Online publication Mortgage Daily News has a few comments on the "LQI." They rightly note that it appears bank quality control staff are going to have to "spend some time in the classroom." I'm not certain that's necessarily a bad thing. If originators are screwing up the basics, classroom time is something that ought to be happening. Also, MDN suggests that since Fannie Mae is going to begin a process where it tries to weed out the chaff from the wheat before it purchases a loan, originators should have a friendly relationship with a "scratch and dent desk." Again, good advice.