Selling Guide

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A2-2-05, Invalidation of Limited Waiver of Representations and Warranties (01/27/2015)

Introduction

This topic contains information on invalidation of the limited waiver of representations and warranties for mortgage loans underwritten through DU, including:


Overview

For loans submitted to DU for evaluation, the lender must review the entire underwriting file to determine whether it includes any data or other information that was either not submitted to DU, or is inconsistent with any data or information that was in fact submitted to DU. If any such information (especially of a derogatory or contradictory nature) is found, the lender must take appropriate action, such as further investigating the information, to see if it would change the DU recommendation, or setting aside the DU recommendation if there are grounds for the lender to arrive at an underwriting decision other than the one it reached on the basis of the original DU recommendation. In such cases, the limited waiver of representations and warranties will no longer be valid for a mortgage that had received an Approve/Eligible recommendation.

Fannie Mae generally places no restrictions on the sale or transfer of loans underwritten through DU to third parties either before or after the mortgage is closed, other than a requirement that the sale or transfer must be in compliance with all applicable laws. When the limited waiver of representations and warranties is transferable, the selling or transferring lender must fully disclose (1) the fact that the mortgage was submitted to DU for evaluation, and (2) the nature of the DU recommendation. The selling or transferring lender also must include in the mortgage file that it transfers to the new lender the DU Underwriting Findings report and the corresponding DU Underwriting Analysis report (as well as any other pertinent DU reports).


Lenders That Sell or Assign Loans Underwritten Through DU

A lender that sells or assigns loans underwritten through DU must modify its assignment letters or loan sale agreements to set out instances in which a mortgage that was eligible for a limited waiver of representations and warranties may no longer be considered eligible. Situations that affect the continued eligibility of a mortgage for a limited waiver of representations and warranties include, but are not limited to, the following:

  • a significant change that makes the information on which the DU recommendation was based no longer true, complete, or accurate.

  • the elapse of 12 months since the mortgage was originated makes the mortgage subject to Fannie Mae’s standard eligibility requirements for seasoned mortgages.

  • a determination that the terms of the closed mortgage are substantially different from those on which the DU recommendation was based or that the DU recommendation was based on incorrect information.


Lenders That Acquire Loans Underwritten with DU

A lender that acquires loans underwritten with DU must include in its QC processes appropriate procedures to:

  • verify that any conditions specified in the DU Underwriting Findings report have been satisfied, and

  • confirm that the data from the closed mortgage agrees with the documents and all DU reports that are in the loan casefile.

If there are inconsistencies between the data from the closed mortgage and the data on which DU’s recommendation was based, the limited waiver of representations and warranties will not apply—unless the lender either:

  • submits corrected information for the closed mortgage to DU for evaluation (if it is a licensee) and receives an Approve/Eligible recommendation ; or

  • requests the licensee that originally submitted the mortgage to DU to re-enter the correct information for the mortgage into DU (if permitted by applicable law) for the production of new reports and analyses to confirm that the recommendation is still Approve/Eligible for the limited waiver. The lender should request that both the results of the resubmission and all new reports be sent to it.

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