The Federal Housing Finance Agency recently announced it will put in place a new representation and warranty framework in order to improve the mortgage market.
The new framework, which will begin January 1 of next year, is designed to help clarify the repurchase exposure and liability on future mortgages for lenders.
In the current market, many lenders aren't offering financing to borrowers because they fear Fannie Mae and Freddie Mac would make them repurchase the loan if it became delinquent. The change will help flag problem loans earlier in the process, so that won't be as big a worry for lenders, which in turn could mean looser lending standards.
"Ultimately, better quality loan originations and underwriting, along with consistent quality control, help maintain liquidity in the mortgage market while protecting Fannie Mae and Freddie Mac from loans not underwritten to prescribed standards," said Edward DeMarco, acting director of FHFA.
DeMarco added that the initiative should contribute to the stabilization of the housing finance system moving forward.
Tim Rood, managing director of the Collingwood Group, told Bloomberg that the change is a "step in the right direction" for the market.
