GSEs Release Revised Framework for Origination Defects and Remedies — The Proof Will Be in the Execution

By: Laurence E. Platt, Jennifer A. Overall

By recently releasing yet another revised representation and warranty framework, Fannie Mae and Freddie Mac continued their efforts to assuage the concerns of the lending industry that a default by a borrower poses an unfair risk of a loan repurchase demand.  On October 7, 2015, Fannie Mae and Freddie Mac (the “GSEs”), at the direction of the Federal Housing Finance Agency (“FHFA”), announced a framework for  origination defects and remedies (the “Framework”) that expands on existing frameworks governing the rights and responsibilities of lenders that sell or securitize loans to or with the GSEs.  For example, permitting repricing or cure in lieu of the remedy of repurchase represents a concession by the GSEs.  Nevertheless, the language of the new Framework is ambiguous enough that one may have to rely on the GSEs’ apparent spirit of good intentions rather than the precision of their language to take total comfort in the changes.

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