To maintain an important inducement for mortgage putbacks, Freddie Mac has warned its seller-servicers to stop cutting side deals with mortgage insurers.
Under the settlement agreements at issue, mortgage insurers have been agreeing not to rescind letters to seller-servicers for mortgages owned by Freddie Mac.
The reason Freddie Mac is upset about the settlement agreements is that it had been depending on insurers to help spot mortgages that did not meet the government-sponsored enterprise's underwriting guidelines when they were written. When a mortgage insurer rescinded coverage it gave the GSE a red flag for a putback to the servicer or the originator of the loan.
"These arrangements are neither authorized or contemplated in the Freddie Mac seller-servicer guide and go beyond the authority the guide does provide," said Brad German, a spokesman for Freddie Mac. "This does not do anything new, the letter reminds and reinforces to servicers the importance of those requirements."
The Federal Housing Finance Agency, Freddie Mac's conservator, says the settlement agreements are serious violations.
"FHFA is aware of this issue," Corinne Russell, an agency spokeswoman, said in an email. "Freddie Mac's industry letter clarifies and reaffirms existing policy that lenders cannot make side agreements with mortgage insurers to resolve coverage and claims disputes."
