GSE Loan Repurchases are on the Rise!
As recently published by Inside Mortgage Finance, GSE loan repurchases are on the rise!
“Fannie Mae and Freddie Mac reported $2.97 billion of seller repurchases in 2021, the largest annual volume in years……“
According to recent data released by Fannie Mae and Freddie Mac, last year experienced the highest level of GSE loan repurchases since the Housing Crisis. SEC filings indicate that seller repurchases last year were significantly increased from the pre-pandemic era.
This spike in GSE loan repurchases directly followed a volatile 2020, which saw repurchase volume spike by an astounding 76 percent, alongside many other general market anomalies (many of which were clearly and directly connected to the COVID-19 pandemic).
Since the beginning of the pandemic, the housing market has generally experienced very high levels of activity. This is largely due to the fact that interest rates have been relatively low, housing stock is limited, various government programs have become more involved in shaping markets and, perhaps most importantly, the issuance of mortgage-backed securities has been on the rise.
In fact, between 2020 and 2021, Fannie Mae and Freddie Mac issued more than $5 trillion in mortgage-backed securities. For reference, that figure roughly matches the annual GDP of Japan (the third-largest economy in the world). About three-in-five (58.6 percent) of all repurchases that occurred in 2021 were directly tied to MBS that were issued in 2020, with 31 percent coming from MBS issued last year.
By every observable measure, activity involving GSE loan repurchases will likely increase even further—a high number of recently issued mortgages are at risk of entering the general repurchase market and MBS-related trading activity has been at its highest level in at least the past ten years.
What can be done to mitigate the risk of a loan repurchase?
In so far as reducing your liability, make an attempt to negotiate your Mortgage Loan Purchase Agreement (“MLPA“). Although these are generally one-sided agreements in favor of the investor, if you can negotiate even small changes, they may be able to provide a cumulative benefit.
Key points to remember are, but not limited to, the following:
- Volume of business dictates negotiating leverage. Generally, the more volume you do with an investor, the more accommodations can be made. Even a minor adjustment, can provide value.
- Does the MLPA control over the Seller Guide? When there are key contractual provisions within the Seller Guide, this creates the problem that these provisions will be unilaterally changed by the investor. However, while it is not likely that an investor will make changes to their seller’s guide, one way is to attempt to modify the Seller’s guide through negotiating the MLPA.
- Materiality qualifiers: Focus on language dealing with materiality.
- Notice Periods: Negotiating for increased time periods for providing notice.
- Unilateral vs. Mutual Attorneys’ Fees Provisions: These one-sided attorney’s fees provisions state that one party recovers attorney’s fees in the event of litigation while the disadvantaged party—is unable to recover attorney’s fees.
Sean A. Stephens, Esq., CMB®
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