One reason mortgage credit remains tight is because Fannie Mae and Freddie Mac have not spelled out their policies on loan buybacks, according to the chief executive of Wells Fargo Home Mortgage.
This uncertainty surrounding buybacks is “creating more and more of the credit overlay problem,” said WFHM CEO and president Mike Heid.
Speaking at a National Association of Hispanic Real Estate Professionals conference in Washington, Heid noted that lenders can make their best efforts to underwrite a loan properly. But “your judgment can be second guessed three years, five years and 10 years” down the road. And the buybacks usually involve loans that go bad. As a result, lenders are not sure what buyback risks they are taking when they underwrite a loan.
Heid noted that the Federal Housing Finance Agency has provided a framework for clarifying
But it is up to Fannie and Freddie to take this R&W conceptual framework and spell out the actual details of their buyback policies. “That is the unfinished business,” the Wells Fargo executive said.
When asked about the GSEs’ efforts to flesh out their buyback policies, Heid said there has been some talk. “We will see how it plays out,” he told NMN.
Fannie and Freddie could not be reached for comment.
During the first three quarters of 2012, Fannie made $19.4 billion in new buyback requests and Freddie made $7 billion in new requests, according to a Fitch Ratings report.
