(Adds details on framework revision)
Nov 20 (Reuters) - Fannie Mae and Freddie Mac said on Thursday they have revised their representation and warranty framework in an attempt to reduce concerns among lenders about the risk on buying back loans sold to the two federal mortgage finance agencies.
The mortgage industry and some analysts have blamed this “repurchase” risk for making lenders reluctant to lend more, thereby putting a drag on the U.S. housing recovery.
Housing activity and mortgage demand fell after mortgage rates rose from their historic lows in the spring of 2013. Mortgage demand to buy homes, and to refinance, recovered modestly in recent weeks, according to data from the Mortgage Bankers Association.
“There are qualified borrowers who are not being served in today’s market. With this clarity, lenders should have greater confidence in lending to Fannie Mae’s full credit standards and making mortgages available to more borrowers,” Andrew Bon Salle, Fannie Mae’s executive vice president of single-family underwriting, pricing and capital markets, said in a statement.
In the aftermath of the housing bust, Fannie and Freddie could require lenders and servicers to buy back a defaulted mortgage if a problem was found in the loan documents or if other violations of a representation or warranty occurred. A repurchase may occur if a breach happens regardless of whether the related loan is in default.
“Addressing these concerns by providing tighter definitions and clarity should encourage sellers to serve a broader range of qualified borrowers,” said Dave Lowman, Freddie Mac’s executive vice president of single-family business in a statement.
Fannie and Freddie narrowed the parameters requiring lenders and servicers to buy back their loans.
Under its revised framework, Fannie said it can only seek repurchase of a mortgage if it determines the failure to comply would undermine its rights on the loan or result in a liability for the company, or if the lender violated a consumer protection law or regulation.
Freddie made similar changes after the two agencies held discussions with industry participants and its regulator, the Federal Housing Finance Agency.
On Wall Street, Fannie Mae shares rose 5 percent to $2.45, while Freddie Mac stock gained 7 percent at $2.39. (Reporting by Richard Leong; Editing by G Crosse and Chris Reese)