MBA Calls for Aligned Credit Standards, Clear Repurchase Rules

A new concept paper from the ""Mortgage Bankers Association"":http://mbaa.org/default.htm (MBA) calls for the alignment of underwriting standards and clear representations of warranties as a major step in secondary market reform.

[IMAGE]

The paper is the fourth in the group's ""five-part series"":http://www.mbaa.org/Advocacy/Issues that lays out immediate steps the Federal Housing Finance Agency (FHFA) and the GSEs can take to ""ease the transition into a new secondary mortgage market regime."" The final paper will be released in the coming weeks.

In the paper, MBA suggests that FHFA set the parameters for acceptable underwriting criteria by both Fannie Mae and Freddie Mac and then allow them to offer credit terms within that boundary. Both enterprises should also be [COLUMN_BREAK]

required to synchronize their underwriting engines by the end of the year for all mortgage terms and products offered.

""If we are to have a fully functioning secondary market that provides sustainable access to credit for qualified borrowers, then the development of transparent and consistent credit underwriting standards are of the utmost importance,"" said MBA chairman Debra W. Still, CMB.

In addition, MBA calls for greater clarity in both of the GSEs' representations and warranties framework. According to the association, the new framework should hold lenders responsible for the factors they control (origination and servicing practices, for example). It should also provide a clear definition for what constitutes a material underwriting breach and should require a causal link between that breach and the loan default.

Finally, the paper calls for the establishment of a performance benchmark after which representations and warranties are extinguished.

""Confusion and uncertainty around representations and warranties standards continues to cause lenders to add their own overlays to the existing GSE credit standards,"" said Bill Cosgrove, CMB, vice chairman for the association. ""As a result, lenders are only offering mortgages to those with the most pristine credit for fear that any borrower default will trigger costly repurchasing requests. This is a major contributor to the tight credit environment that is holding back the housing recovery.""