Fannie and Freddie Aim for Mortgages with 'Zero Defects'


"As rates go up, the credit box will try to be expanded, corners will be cut and that's when we will be on the front lines," said Christopher Mock, Freddie's vice president of quality control.

Fannie Mae and Freddie Mac are about to get tougher on banks and other lenders that cut corners when originating mortgages and try to sell them to the government-sponsored enterprises.

For the first time ever, the GSEs are creating formal programs to flag defective loans and assess risks in lenders' mortgage processes. Lenders will be graded and receive feedback on areas such as underwriting, quality control and governance and, if loans are defective, the GSEs will require lenders to immediately repurchase them. In the past, it might have taken years for the GSEs to spot defects and force a lender to repurchase a loan.

"Our expectation is zero defects," Steve Spies, a vice president of loan quality and lender assessment at Fannie Mae, told a group of risk managers at an industry conference last week.

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