Selling Guide

Published June 5, 2018

A2-3.2-01: Loan Repurchases and Make Whole Payments Requested by Fannie Mae (08/29/2017)

This topic contains information on loan repurchases and make whole payments requested by Fannie Mae, including:

Overview

As part of its quality control (QC) system, Fannie Mae reviews mortgage loans that it has purchased or securitized. Fannie Mae may conduct several different types of reviews, including post-purchase reviews, early payment default reviews, servicing reviews, and post-foreclosure reviews. During the QC reviews, Fannie Mae may identify a “defect”—a loan-level deficiency that breaches a term contained in the Lender Contract in effect at the time of loan delivery. These reviews may result in loan repurchase demands, make whole payment demands, or other alternative remedies.

Fannie Mae requires some repurchases because the terms under which the mortgages were purchased or securitized call for a repurchase under certain conditions or circumstances. Repurchases that fall into this category generally include, but are not limited to, Charter violations, an adjustable-rate mortgage in an MBS pool that has converted to a fixed-rate mortgage per the borrower’s exercise of its option in the mortgage documents, or an MBS mortgage that has 24 payments past due.

Certain mortgage loans may be eligible for relief from enforcement for breaches of certain representations and warranties once the mortgage loan has satisfied the requirements described in A2-3.2-02, Enforcement Relief for Breaches of Certain Representations and Warranties Related to Underwriting and Eligibility. Eligible mortgage loans include those loans acquired by Fannie Mae on or after January 1, 2013.

Violation of Contractual Warranty

If Fannie Mae's loan review determines (or Fannie Mae otherwise learns) that a mortgage loan did not meet Fannie Mae requirements due to violation of the Lender Contract or, if the “remedies framework” applies and a “significant defect” is identified, Fannie Mae may require the lender to immediately repurchase the mortgage loan or acquired property (or Fannie Mae's participation interest in the mortgage loan) or to remit a make whole payment if the property has been liquidated.

Fannie Mae may also require repurchase or a make whole payment if any warranty the selling lender made is untrue and, if the remedies framework applies, qualifies as a significant defect, whether or not the lender had actual knowledge of the untruth. No such repurchase (or make whole payment) request will be made if the warranty specifically states that a violation does not exist unless the lender had actual knowledge of the untruth and the lender has no such knowledge.

A quality control loan file review or payment of loan-level price adjustments in no way limits Fannie Mae’s right to require a repurchase or a make whole payment if a warranty breach is later discovered, unless the mortgage loan has qualified for relief under the enforcement relief framework and the subsequent breach is not a breach of a life-of-loan warranty or any other warranty outside of Subparts B1 to B5 of the Selling Guide.

Conditions Requiring Repurchase

Fannie Mae has the right to require a lender to repurchase a mortgage loan or an acquired property, or remit a make whole payment, as a result of a breach of the Lender Contract. For loans subject to the remedies framework, if a breach of a selling representation and warranty is identified, such breach must result in a significant defect. In addition to repurchase for breach of warranty, lenders may be required to repurchase some loans because the terms under which the mortgage loans were purchased or securitized call for a repurchase. Unless a loan has qualified for relief from enforcement for breaches of certain selling representations and warranties in accordance with A2-3.2-02, Enforcement Relief for Breaches of Certain Representations and Warranties Related to Underwriting and Eligibility, a decision not to require repurchase at a particular time does not waive Fannie Mae's right to demand repurchase at a later time, or to institute other remedies for breach of the Lender Contract.

Fannie Mae may conduct several different types of reviews with respect to a mortgage loan, including a post-purchase review, an early payment default review, a servicing review, or a post-foreclosure review. During the course of a review, Fannie Mae may identify

  • significant underwriting deficiencies,

  • significant defects,

  • a breach of a selling representation or warranty, or

  • a breach of the terms of any applicable contract provision.

If any of the foregoing are identified, Fannie Mae may require the immediate repurchase of a mortgage loan or an acquired property or the remittance of a make whole payment (all of which fall under the definition of a “demand”) unless and until such mortgage loan is eligible for relief from enforcement for breaches of certain underwriting and eligibility representations and warranties in accordance with A2-3.2-02, Enforcement Relief for Breaches of Certain Representations and Warranties Related to Underwriting and Eligibility.

In some instances, Fannie Mae may enter into other repurchase alternatives. See A2-3.2-03, Remedies Framework, and the Servicing Guide.

In some instances in which the lender has breached its representations or warranties, Fannie Mae may allow the lender to correct the warranty violation. During the appeal and impasse processes, the lender has the right to correct a significant defect for mortgage loans subject to the remedies framework in the time frame and manner required by the Lender Contract. If no time frame or manner for correction is identified in the Lender Contract, the correction of the significant defect shall be as determined by Fannie Mae. See Subpart D2, Fannie Mae QC Process, for additional information about the quality control selection and review process and timelines related to the remedies framework.

Lender Response to a Demand

When Fannie Mae requires a repurchase or a make whole payment because of a breach, the lender should work with the Fannie Mae individual or department noted on the demand to resolve any issues. Fannie Mae has an established appeal, impasse, management escalation, and Independent Dispute Resolution process (see A2-3.2-03, Remedies Framework).

Despite the best efforts of both parties, Fannie Mae and the lender may not always be able to reach a mutual agreement. In such cases, the lender must repurchase the mortgage loan, the acquired property, or Fannie Mae’s participation interest in the mortgage loan or the acquired property or exercise its rights under the appeal, impasse, and management escalation process, or the Independent Dispute Resolution process.

Repurchase Resolution

When Fannie Mae identifies a defective mortgage, it may, in its sole discretion, impose a condition to retaining the loan, such as requiring the lender to agree to an alternative remedy to repurchase. In some cases, as permitted in the Lender Contract, Fannie Mae will issue a repurchase or make whole payment demand to the lender. The selling defects that give rise to a repurchase or make whole payment demand for loans covered by the remedies framework consist of errors or failures that Fannie Mae identifies as significant defects, as described in D2-1-03, Outcomes of Fannie Mae QC Reviews.

This Guide contains timelines by which lenders must pay Fannie Mae the funds that are due in connection with a repurchase or make whole payment demand or other alternative remedy. If a lender delays in this or has a pattern of unresponsiveness, Fannie Mae may consider this a breach of contract and consider other actions against the lender, up to and including termination.

For performing mortgage loans with significant defects covered by the remedies framework, Fannie Mae may elect not to require immediate repurchase, but may instead offer a repurchase alternative. The nature and severity of the findings, financial and operational strength of the lender, the quality of the mortgages sold, servicing performance, the acceptability of the investment, and the loan payment history are some of the criteria that may be used by Fannie Mae in deciding whether to use this option. Fannie Mae may consider a lender’s counterparty status in determining whether a loan is retainable and to the extent that there are future obligations required as part of the repurchase alternative.

Payment of Repurchase Proceeds

For mortgage loans acquired by Fannie Mae prior to January 1, 2013, the lender must pay Fannie Mae the funds that are due in connection with a repurchase or make whole payment demand within 30 days (or with its next scheduled remittance following the completion of the 30–day period).

For mortgage loans with acquisition dates on or after January 1, 2013, the lender must pay Fannie Mae the funds that are due in connection with a demand for repurchase, indemnification, or make whole payment within 60 days after receipt of the demand or within such other time frame as specified by Fannie Mae unless an appeal is made. (For repurchase demands made on a loan that has not been foreclosed upon or liquidated, the payment of the repurchase price may be made by the lender (or servicer) with its next scheduled remittance following the completion of the 60–day period.) If a lender delays in this, or has a pattern of unresponsiveness, Fannie Mae may consider this a breach of contract and consider other actions against the lender, up to and including termination.

Should Fannie Mae have to take legal action to enforce its right to require repurchase of a mortgage (or property), the lender will also be liable for Fannie Mae’s attorney’s fees, costs, and related expenses, as well as for any applicable consequential damages.

Note: Lender or servicer responsibilities described herein may actually be those of the “responsible party,” as applicable.

Redelivery of Repurchased Loans

If a mortgage loan was repurchased by a lender, and the repurchased loan is subsequently made compliant with Fannie Mae's current standards, the loan may be redelivered to Fannie Mae, at its sole and absolute discretion, on a negotiated basis.

The lender represents and warrants that the mortgage being delivered is not a mortgage that was required to be repurchased by a secondary market investor, government-sponsored enterprise, or private institutional investor other than Fannie Mae for any documentation, underwriting, property valuation, deficiencies and/or issues with the property (including project eligibility if the property is in a condo, co-op, or PUD project), borrower credit, or other deficiencies or for any other reason. These types of mortgages are not eligible for delivery even if the identified defect has been corrected by the lender.

Note: A mortgage loan that a lender repurchased from another investor or GSE that was delivered in error to that investor or GSE is eligible for delivery to Fannie Mae as long as it meets all requirements of the Selling Guide.

In the event that a mortgage loan is deemed ineligible for redelivery to Fannie Mae or rejected by Fannie Mae upon redelivery, any future losses incurred after repurchase are the responsibility of the lender and not Fannie Mae.

Repurchase Price

Whenever Fannie Mae requires repurchase of a mortgage loan without redelivery to Fannie Mae’s portfolio and, at the time of the repurchase, title to the security property has passed to Fannie Mae (or is held for Fannie Mae, but in the name of the servicer pursuant to its duties as Fannie Mae's servicer), Fannie Mae will require repurchase of Fannie Mae’s interest in the property, or for the lender to remit a make whole payment if the property has been liquidated.

The repurchase price for a mortgage loan and the purchase price for an acquired property will be the same as if the lender were repurchasing the mortgage loan with accrued interest and other adjustments, including Fannie Mae’s property-related expenses such as maintenance and marketing expenses, through the date of repurchase. Loan-level price adjustments (LLPAs) will not be included in the repurchase price or make whole payment calculation; however, lenders may be eligible for a partial LLPA refund on certain loans that have been repurchased. See C1-1-01, Execution Options, for additional information.

The purchase price is not based on the market value of the property at the time of the purchase but on all amounts due Fannie Mae on the subject mortgage loan and property. When the servicer purchases the property or remits a make whole payment, Fannie Mae also will convey all rights as owner of the loan (e.g., deficiency rights), if any, that Fannie Mae may still have pursuant to applicable state law, but Fannie Mae has no obligation to the servicer or responsible party to have preserved such rights. If the property has been liquidated, Fannie Mae will issue a demand for a make whole payment to compensate it for the losses it suffered in purchasing a defective mortgage.

Related Announcements

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

Announcements Issue Date
Announcement SEL-2017-07 August 29, 2017
Announcement SEL-2016–07 August 30, 2016
Announcement SEL-2016–02 February 23, 2016
Announcement SEL-2015–12 November 3, 2015
Announcement SEL-2015–06 May 26, 2015
Announcement SEL-2014–07 June 24, 2014
Announcement SEL-2013–03 April 9, 2013