Upon completion of a full-file quality control review for loans covered by the remedies framework, Fannie Mae will designate any defect uncovered during that review as one of the following:
A “finding” is one or more defects that, when considered with other loan features, does not necessitate a change in the price of the loan or result in the loan being unacceptable even if the true and accurate facts about the loan had been known at the time Fannie Mae purchased or securitized the loan.
A “price-adjusted loan (PAL)” has one or more defects that, when considered with other loan features and based on the facts of the loan as purchased or securitized by Fannie Mae, result in a loan that was otherwise eligible for delivery had the correct data been delivered and LLPA been paid to Fannie Mae by the lender.
A “significant defect” is one or more defects that either necessitates a change to the price on which the loan was acquired or result in the loan being unacceptable for purchase had the true and accurate information about the loan been known at time of purchase. Loans with findings and PALS are not loans with significant defects.
See A2-3.2-03, Remedies Framework, for additional information about the remedies framework.
In determining whether there is a significant defect on a loan covered by the remedies framework, Fannie Mae must give due consideration to the severity of the defect. In addition, the defect must relate to one of the following:
|Significant Defect Criteria Related To||Examples|
|the underwriting of the borrower’s creditworthiness and capacity||the borrower’s income, credit, liabilities, and assets|
|the borrower’s eligibility and qualification||
|the underwriting criteria related to property or project eligibility||
|the property appraisal or the physical condition of the property|
|a life-of-loan representation and warranty||as described in A2-2.1-07, Life-of-Loan Representations and Warranties|
|loan and product terms and criteria||the criteria provided in the Eligibility Matrix, such as
and terms such as
|requirements applicable at the time of loan purchase||
|the warranties and obligations of the lender regarding the FHFA Suspended Counterparty Program|
|the existence, sufficiency, or enforceability of any required insurance or guaranty|
|the form and/or execution of Fannie Mae required loan documents, that without which make the loan ineligible for sale or limit the enforceability of the required loan terms||
In the event the defect identified by Fannie Mae also turns out to be a breach of any provision of any mortgage insurance policy issued with respect to a loan, the lender is not released from any breach of the Lender Contract that may result if the mortgage insurance company insuring the loan rescinds, cancels, denies, or curtails the mortgage insurance benefit due to the same or similar acts or omissions that make up the defect.
The table below provides references to the Announcements that have been issued that are related to this topic.