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Freddie Mac Warns of Repurchase Demands for Insurance Deficiencies

""Freddie Mac"":http://www.freddiemac.com says it is seeing a ""material increase"" in mortgage insurer rescissions, cancellations, and denials of coverage on Freddie Mac-owned mortgages.

The McLean, Virginia-based GSE ""issued a notice"":http://www.freddiemac.com/sell/guide/bulletins/pdf/iltr081211.pdf to mortgage sellers and servicers late last week alerting them that the lender may be forced to buy back the loan if Freddie Mac determines the mortgage does not have the mortgage insurance coverage as required at delivery, or if the mortgage insurance coverage is no longer in force.

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Lenders must have obtained a primary mortgage insurance policy as protection against default on any conventional first mortgage that has a loan-to-value (LTV) ratio greater than 80 percent at the time the mortgage is sold to Freddie Mac.

The GSE says if a lender currently has an outstanding repurchase request from Freddie Mac stemming from rescission, denial, or cancellation of mortgage insurance, the lender must move ahead with buying back the loan, or appeal the repurchase request by showing evidence that the mortgage insurance is indeed in effect or that the claim has been paid in full.

To accommodate the recent increased volume of activity, Freddie is giving lenders until September 30th to resolve the issue for any repurchase requests dated on or before May 31, 2011. For buyback requests dated after May 31, 2011, the resolution must be completed within the timeframes specified in the purchase documents.

If the above resolution dates are not met, outstanding repurchase requests will be considered delinquent, and Freddie Mac may assess late fees or other remedial actions.

The GSE also included a reminder in the notice that lenders are required to notify Freddie Mac of termination or denial of mortgage insurance due to fraud.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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