Selling Guide

Published November 03, 2021

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A2-3.2-02, Enforcement Relief for Breaches of Certain Representations and Warranties Related to Underwriting and Eligibility (08/04/2021)

Introduction

This topic describes the framework that provides lenders with relief from Fannie Mae's enforcement for breaches of certain underwriting and eligibility representations and warranties for loans that meet specific payment history or other eligibility requirements. This topic contains information on the following subjects:

 

Overview of the Enforcement Relief Framework

Representations and warranties required by Fannie Mae are described in the Mortgage Selling and Servicing Contract, the Selling and Servicing Guides, and other Lender Contracts. Violation of any representation and warranty is a breach of the Lender Contract, entitling Fannie Mae to pursue certain remedies, including a loan repurchase or make whole payment demand as more fully described in A2-3.2-01, Loan Repurchases and Make Whole Payments Requested by Fannie Mae. For conventional loans that are acquired by Fannie Mae on a flow basis, the lender will be relieved of its obligation to remedy breaches of certain underwriting and eligibility representations and warranties if the loan meets certain eligibility criteria described under Loans Eligible for Enforcement Relief below. This framework does not change the underlying representations and warranties the lender makes to Fannie Mae when selling loans; it changes whether and how Fannie Mae will enforce breaches of those representations after a loan has achieved relief under the framework. No relief will be available for breaches of certain “life-of-loan” representations and warranties as described in Life-of-Loan Representation and Warranty Exclusions below, regardless of whether a loan otherwise qualifies for relief. The availability of the enforcement relief framework does not discharge lenders from the responsibility for underwriting and delivering quality loans in accordance with Fannie Mae's requirements.

Note: Certain components of the loan may qualify for individual enforcement relief outside of this framework. For example, a loan may qualify for enforcement relief on the borrower’s income at the time the loan is sold to Fannie Mae, and later obtain enforcement relief based on payment history. Life-of-loan exclusions will apply at all times. See A2-2-04, Limited Waiver and Enforcement Relief of Representations and Warranties for Mortgages Submitted to DU, for additional information.

 

 

Scope of Enforcement Relief of Underwriting and Eligibility Representations and Warranties

With respect to an eligible loan (as defined below), a lender will be relieved of the requirement to remedy a loan (such as repurchase, a make whole payment, or other repurchase alternative as more fully described in A2-3.2-03, Remedies Framework) if that loan violates Fannie Mae's single-family underwriting and eligibility requirements described in the applicable parts of the Selling Guide and other Lender Contracts relating to:

  • underwriting the borrower, which includes the lender's assessment of the borrower's loan terms, credit history, employment and income, assets, and other financial information used for qualifying the borrower for the loan;

  • underwriting the subject property, which includes the lender's analysis of the description and valuation of the property to determine its adequacy as collateral for the mortgage transaction; and

  • underwriting the project in which the property is located, which includes the lender's analysis of the condo, co-op, or PUD project in accordance with Fannie Mae's requirements.

The following subparts of the Selling Guide are covered by the relief:

  • Subpart B1, Loan Application Package;

  • Subpart B2, Eligibility;

  • Subpart B3, Underwriting Borrowers;

  • Subpart B4, Underwriting Property; and

  • Subpart B5, Unique Eligibility and Underwriting Considerations.

Note: If a loan with a breach or alleged breach has achieved enforcement relief as provided in this topic, then the obligation to indemnify Fannie Mae is limited in certain respects. See A2-1-03, Indemnification for Losses, for a description of the continuing indemnification obligations.

 

Loans Eligible for Enforcement Relief

To be eligible for the representation and warranty enforcement relief, a loan must meet the acquisition date, payment history, Fannie Mae quality control (QC) review requirements, and additional eligibility requirements, each as described below.

Loans must have been acquired by Fannie Mae as either:

  • whole loans purchased on or after July 1, 2014; or

  • mortgage loans delivered into MBS with pool issue dates on or after July 1, 2014.

Payment History Requirements

For all loans other than Fannie Mae high LTV refinance loans:  To be eligible for relief under the framework, if the relief is based on the borrower’s acceptable payment history, the relief will occur

  • upon payment by the borrower of the first 36 monthly payments due following the loan acquisition date, provided that the borrower

    • had no more than two 30-day delinquencies,

    • had no 60-day or greater delinquencies, and

    • is not 30 or more days delinquent with respect to the 36th monthly payment.

For Fannie Mae high LTV refinance loans: Relief is based on the earlier of

  • payment by the borrower of the first 12 monthly payments due following the loan acquisition date, provided the borrower had no 30–day or greater delinquencies; or

  • payment by the borrower of the first 36 monthly payments due following the loan acquisition date, provided the borrower

    • had no more than two 30-day delinquencies,

    • had no 60-day or greater delinquencies, and

    • is not 30 or more days delinquent with respect to the 36th monthly payment.

Fannie Mae Full-File QC Review

Under the framework, there is an alternative path through which loans may qualify for relief of the selling representations and warranties based on the satisfactory conclusion of a full-file QC review. This enforcement relief will occur when one of the following takes place:

  • Fannie Mae completes a full-file QC review of the loan file, which includes a review of the credit underwriting and eligibility of the borrower, the property (including its value), and the project in which the property is located, if applicable, and determines that the loan is acceptable (that is, it is not subject to a repurchase demand).

  • Fannie Mae completes the full-file QC review of the loan file and determines the loan is not acceptable because of a selling deficiency that the Selling or Servicing Guide  specifically identifies may be corrected. If the lender corrects such deficiency in the time frame and manner specified in the Lender Contract, relief will be effective upon the satisfactory correction of the deficiency as determined by Fannie Mae through a reassessment of the loan.

    • For example, if the loan file delivered to Fannie Mae did not contain the required verification of income, the defect would be deemed to be corrected if the lender provided the missing documentation requested by Fannie Mae within the time frame specified. Another example of an action taken to correct a deficiency is rectifying a prior mortgage lien by producing evidence of a recorded satisfaction or release of such prior mortgage lien within the time frame specified.

  • Fannie Mae completes the full-file QC review of the loan file and determines the loan is not acceptable but may be eligible for a repurchase alternative which expires or terminates by its terms. In this case, relief will be effective upon the satisfactory expiration or termination of the alternative to repurchase.

    • For example, if Fannie Mae determined a loan was not acceptable and, as an alternative to repurchase, Fannie Mae and the lender agreed that the loan would be subject to credit enhancement for 5 years, the loan would be relieved of the selling representations and warranties at the end of the 5-year period. Other possible alternatives to repurchase include recourse, make-whole arrangements, and certain split loss agreements; in each case, the repurchase alternative must satisfactorily expire or terminate by its terms in order for the affected loan to be eligible for relief from the selling representations and warranties under the framework.

Note: The requirements for obtaining relief based on a full-file QC review apply both to performing loans and non-performing loans. As a result, lenders may obtain relief through the QC path regardless of whether the loan had an acceptable payment history.

Post-Relief Loan File and Appraisal Reviews. Fannie Mae may perform loan file reviews for quality assurance and audit purposes both before and after a loan obtains enforcement relief under the framework. However, Fannie Mae cannot issue a repurchase demand or seek an alternative remedy with respect to a deficiency in the underwriting of the borrower, the property, or the project that is relieved under the framework (such as a deficiency related to the LTV ratio or debt-to-income ratio) when that deficiency is discovered after the loan has obtained enforcement relief unless the deficiency qualifies as breach of a “life-of-loan” representation and warranty. A repurchase demand or alternative remedy may be issued only when the deficiency involves one of the life-of-loan exclusions or another provision of the Selling Guide that is not relieved under the framework.

 

Note: If, after a loan has obtained relief under the framework, Fannie Mae reviews an appraisal and determines that the property value used to calculate the LTV ratio was incorrect at the time of delivery, Fannie Mae will not issue a repurchase demand based solely on the fact that the newly calculated LTV ratio is over 80% and the loan did not have credit enhancement in place when it was delivered to Fannie Mae.

 

Additional Eligibility Criteria for Enforcement Relief

In addition to the acquisition date, payment history, or QC requirements described above, the following criteria must also be met for loans to qualify for relief:

  • The loan must be a conventional loan sold to Fannie Mae on a flow basis.

  • Government-guaranteed or -insured loans are not eligible for enforcement relief.

  • Non-flow seasoned or loans sold in bulk may be eligible for enforcement relief only on a negotiated basis. (Seasoned loans that are sold to Fannie Mae on a flow basis in accordance with the Selling Guide are eligible for enforcement relief.)

  • The determination of whether the loan has an acceptable payment history begins on the date of the first monthly mortgage payment due after the Fannie Mae acquisition date.

  • With the exception of loans with temporary buydowns, neither the lender nor a third party with a financial interest in the performance of the loan (such as a mortgage broker, correspondent lender, or mortgage insurer) can escrow or advance funds on behalf of the borrower to be used for payment of any principal or interest payable under the terms of the loan for the purpose of satisfying the payment history requirement.

  • The loan cannot have been sold to Fannie Mae with any credit enhancement other than traditional primary mortgage insurance (i.e., lender- or borrower-paid mortgage insurance).

  • Loans with credit enhancement other than traditional primary mortgage insurance may be eligible for enforcement relief only on a negotiated basis.

  • Loans not impacted by a disaster that become subject to a forbearance agreement are eligible for relief based on the borrower’s payment history; or, on the basis of a QC review of the loan file if the loan meets all other requirements. Loans that become subject to a repayment plan, or are otherwise modified from the original terms after acquisition by Fannie Mae are not eligible for relief based on the borrower’s payment history, but may be eligible on the basis of a QC review of the loan file if the loan otherwise meets all other requirements.

  • Loans that become subject to a disaster-related forbearance agreement and any subsequent repayment plan or modification, are eligible for relief based on the borrower’s payment history or on the basis of a QC review of the loan file if the loan otherwise meets all other requirements. See the disaster-related forbearance criteria below for additional requirements.

  • With the exception of certain loans purchased under the terms of a long-term standby purchase commitment (LTSC), the loans cannot have had any delinquencies between the origination date and the Fannie Mae acquisition date.

    • For loans classified as “Class 1 Mortgage Loans” or “Class 4 Mortgage Loans” that are purchased under an LTSC, the payment history requirement will be measured from the date the loan was committed under the LTSC structure (the 12–, 36–, or 60–month time frame will begin on the date the loan was committed into the LTSC).

  • The loan must not be subject to an outstanding request for repurchase, repurchase alternative, or make whole payment. (See A2-3.2-03, Remedies Framework, for additional information.)

Note: Unless otherwise agreed to by Fannie Mae and the lender, once a loan has qualified for the representation and warranty enforcement relief by compliance with the requirements above, eligibility for the enforcement relief is final and irrevocable subject to the life-of-loan representation and warranty exclusions.

Additional Eligibility Criteria for Loans Subject to Disaster-Related Forbearance

To be eligible for relief, the following applies:

  • The loan is impacted by a disaster occurring on or after August 25, 2017.

  • The property or borrower’s place of employment is located in any county, city, or parish that is a designated FEMA-Declared Disaster Area eligible for Individual Assistance as result of a natural disaster.

  • the loan will be eligible for relief based on payment history on the later of

    • the applicable payment history period end date as required under the framework; or

    • the date the loan transitions out of disaster-related forbearance and is brought current via a reinstatement, repayment plan, or permanent modification.

  • the loan must be brought current through a lump sum payment or a repayment plan completed as agreed. If the forbearance plan transitioned to a permanent modification, the borrower must have completed the trial period plan and executed a permanent modification agreement for any of the modification options available through the Fannie Mae Servicing Guide.

The period of time the loan is in forbearance “counts” toward the payment history requirement and the months in forbearance are not considered delinquent within the relief framework. For example, if the forbearance occurred during months 30-32, the loan may still be eligible for enforcement relief on or after the 36th month of payment history as long as all other payments outside the forbearance met the requirements.

 

Notification of Relief

Fannie Mae will provide lenders with reports listing those loans that met the eligibility requirements for relief.

 

Life-of-Loan Representation and Warranty Exclusions

A lender is not relieved from the enforcement of breaches of its representations and warranties on any loan, including eligible loans, with respect to the following matters even if those matters are addressed in Subparts B1 through B5 of the Selling Guide. With respect to each loan, a lender remains responsible for the life-of-loan representations and warranties related to the following, as more fully described in A2-2-07, Life-of-Loan Representations and Warranties:

  • Fannie Mae Charter Act Matters;

  • Misstatements, Misrepresentations, and Omissions;

  • Data Inaccuracies;

  • Clear Title/First-Lien Enforceability;

  • Compliance with Laws and Responsible Lending Practices; and

  • Acceptable Mortgage Products.

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2021-07 August 04, 2021
Announcement SEL-2020-04 August 05, 2020
Announcement SEL-2019-07 August 07, 2019
Announcement SEL-2018-06 August 07, 2018
Announcement SEL-2017-10 December 19, 2017
Announcement SEL-2016–09 December 6, 2016
Announcement SEL-2016–07 August 30, 2016
Announcement SEL-2016–02 February 23, 2016
Announcement SEL-2015–12 November 3, 2015
Announcement SEL-2014–16 December 16, 2014
Announcement SEL-2014–07 June 24, 2014
Announcement SEL-2013–03 April 9, 2013

 

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