A New Model for 'Reps and Warrants'

The American Securitization Forum has released a new set of model representations and warranties aimed at better aligning incentives of mortgage originators with those of investors as part of a larger, ongoing effort to get the new-issue securitized market going again. The new model includes provisions not included in existing market 'reps and warrants' such as making origination parties responsible for the coverage of fraud and enforcing buybacks of 100% of the value of "defective" mortgages. The inclusion of fraud coverage "is probably one of the most significant examples" of differences between the range of reps and warrants currently used in the market today and what the model suggests, Tom Deutsch, deputy director of the American Securitization Forum, told NMN. Mr. Deutsch said the model provides a "baseline set" of recommended reps and warrants that originators and investors may wish to vary from or even reduce if it is agreed, for example, that an originator has strong fraud controls in place. He also noted that the forum had "very detailed involvement from all the major originators" and "it was a tremendous undertaking to get consensus." The model also covers the qualifications and independence of the person performing a property appraisal and requires originators to use "reasonable" processes to authenticate documentation and verify income for loans with less than full documentation. The model is part of the ASF's "Project on Residential Securitization Transparency and Reporting" also known as Project RESTART. The American Securitization Forum sets recommended standards for market participants based on discussions with its members.