Freddie Repeats Refi Warning

Freddie Mac is reminding lenders that it will not tolerate lending practices that reward borrowers for quickly refinancing loans.The secondary-market agency has found that some mortgage brokers and originators promise to cover several monthly mortgage payments if the borrower agrees to take out a high-interest-rate loan and refinance within a few months. Freddie Mac is warning for the second time that such arrangements violate the representations and warranties lenders sign when they sell a loan to Freddie. And Freddie Mac could require repurchase of such loans or take other actions against the lender. Freddie previously raised objections to these practices in an April news release. Now the agency has issued an industry letter to underscore its concerns. "We expect seller/servicers to monitor prepayment levels of the mortgages they have sold to Freddie Mac, and to notify their Freddie Mac account manager if they become aware of circumstances likely to result in unusually high prepayment rates of these mortgages," the Sept. 1 industry letter says.