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FHFA Piloting Independent Resolution Process for Disputes Over Defective Loans

handshake-twoThe Federal Housing Finance Agency (FHFA) is piloting an independent process to resolve disputes between the GSEs and financial institutions over faulty mortgage loans.

Bob Ryan, FHFA Office of the Director Special Adviser, confirmed while speaking at a conference on housing finance availability hosted by the Urban Institute that an independent dispute resolution process was in the works but not yet complete.

The disputes involve the FHFA requiring financial institutions to repurchase defective loans they sold to Fannie Mae and Freddie Mac in the years leading up to the financial crisis. Ryan told the audience that if the terms and conditions of the contract have not yet been resolved after “all the back and forth between the lender and the Enterprises” when the lender is trying to get Fannie Mae or Freddie Mac to repurchase the bad loans, then the independent process is “one way to work through that.”

The FHFA sued 18 lenders in 2011 to recoup U.S. taxpayer costs following the government's $188 billion bailout of Fannie Mae and Freddie Mac in 2008, after which the government seized control of both Enterprises. While 16 lenders settled with the FHFA for a combined total of about $18 billion, Nomura and Royal Bank of Scotland took the FHFA to trial and lost; a judge ordered them to pay $839 million to FHFA. The remaining lender sued by FHFA, Royal Bank of Scotland, is awaiting trial in a case separate from the Nomura one.

Ryan also told the audience that the FHFA is considering changes in the GSEs’ process for auctioning off non-performing loans, many of which are two, three, and four years delinquent, in order to assist more borrowers with remaining in their homes. In March, the FHFA announced enhanced requirements for bidders in those auctions which include applying a “waterfall of resolution tactics.”

Click here to view the video. The conference was broadcast on C-SPAN.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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