FHFA expands fee-based alternative to repurchase loans to all approved lenders

On Monday, the Federal Housing Finance Agency (FHFA) announced that all approved lenders will have access to a fee-based alternative to repurchase Freddie Mac’s performing loans with defects, expanding a pilot program launched earlier this year.

In addition, the FHFA announced that government-sponsored enterprises (GSEs) will give 60 days of advance notice for increases to their base guarantee fees greater than one basis point when the loans are delivered through the mortgage-backed security swap channel.

Regarding repurchasing loans, Naa Awaa Tagoe, deputy director of the division of housing mission and goals at the FHFA, explained that through the pilot program, instead of repurchasing defective – but performing – loans within the first 36 months of origination, lenders pay a fee based on the defect rate of their performing loan deliveries to Freddie Mac on that quarter’s aggregate loan balance.

Tagoe spoke on stage during the Mortgage Bankers Association (MBA) Annual Convention & Expo in Denver, when the FHFA announced the pilot’s expansion and other initiatives, such as those related to appraisals.

Lenders will have the option to opt in or out of the fee-based structure annually. If they opt out, Freddie Mac is also adding a “fee-only” option, for which the fee is only charged on the defective loan as an alternative to repurchasing the loan.  

Freddie Mac said the extension will begin in the first quarter of 2025. It added that, due to the expansion, lenders will no longer be subject to repurchases on most performing loans. Instead, they will be subject to a fee-based structure that incents quality loan origination.

“Today’s announcements are part of making good on our commitment to be part of the solution and build upon the progress we have already made with lenders and industry partners over the past year. We know lenders will continue doing their part to keep improving loan quality,” Sonu Mittal, senior vice president and head of single-family acquisitions at Freddie Mac, said in a statement.

According to Freddie Mac, lenders with a non-acceptable quality rate above 2% will be charged a fee in a step-up approach based on the unpaid principal balance of loans delivered for the quarter. However, the fee will be assessed on lenders who deliver enough loan volume to generate statistically significant sampling, excluding some small lenders. Loans that default within the relief period are still subject to repurchase.

Freddie is also publishing a quarterly report of repurchase data beginning in 2025. The company claims repurchase requests, which the industry pointed out as a problem in the past couple of years, are approximately 55% lower than their peak in the first quarter of 2023. 

The MBA commended the changes. President and CEO Bob Broeksmit said the trade group “has been a leading industry voice in seeking effective alternatives to loan repurchase.”  

Broeksmit also said the 60-day advance notice for some guarantee fee increases will help lenders better manage pricing strategies and loan pipelines.

“We have long called for increased pricing transparency and believe more conversations are needed to better balance who bears the risks of pricing volatility between the primary market and the GSEs,” Broeksmit said. 

The Community Home Lenders of America (CHLA) similarly cheered the move.

“CHLA greatly appreciates the expansion of this repurchase alternative pilot for performing loans,” said Scott Olson, executive director. “We continue to support this program and its mission to provide balance in a challenging housing environment for lenders and borrowers by improving loan quality and ensuring borrowers, particularly underserved, are able to stay in their homes.”