Update Related to Ability to Repay and Qualified Mortgages

September 30, 2013


On May 6, 2013, Fannie Mae released a Lender Letter (LL-2013-05) announcing that as directed by FHFA, effective for mortgages with application dates on or after January 10, 2014, it would no longer purchase loans with certain product features related to the “ability to repay” (ATR) provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act as directed by FHFA.

On August 20, 2013, Fannie Mae provided additional detail through Selling Guide Announcement SEL-2013-06 based on the “ability to repay” provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Certain highlights of the announcement include:

Delivery Cut-Off for Retired Product Features

In a change from what was stated in subsequent Lender Letter LL-2013-06, due to market and operational considerations, Fannie Mae is implementing a flow delivery cut-off for mortgage loans with retired product features as set forth below:

  • loan terms in excess of 30 years
  • loans with an interest-only feature
  • growing-equity mortgages

All whole loans with any of the features set forth above must be committed in eCommitting™ or eCommitONE® on or before June 30, 2014, and purchased by Fannie Mae on or before July 31, 2014. All loans which contain any of these product features must be included in mortgage-backed securities (MBS) with issue dates on or before July 1, 2014. After this time, Fannie Mae will consider deliveries of loans with these product features on a case by case basis only.

Representations and Warranties

Fannie Mae announced a new representations and warranties framework (SEL-2012-08) on September 11, 2012.  Included in the framework are provisions for lender relief from certain representations and warranties after 36 months of payment history and those that are effective over the life of the loan.

FHFA has directed Fannie Mae to incorporate new ATR Covered Loan eligibility requirements as part of its mortgage product eligibility requirements; thus, these eligibility requirements fall under the life of loan representations and warranties that apply to certain single-family mortgage products or features, as well as to directive-required standards. Separately, the ability to repay requirement is a statutory obligation under the Truth in Lending Act (TILA), any breach of which would violate a lender’s representation and warranties to Fannie Mae regarding compliance with laws.

Please refer to Selling Guide Announcement SEL-2013-06 for further details.

For questions, investors may contact the Fannie Mae Fixed-Income Investor Helpline at 1-800-237-8627 or by email.

Originally published: 10/01/13