Freddie Mac 2015 Annual Report Download - page 93

Management's Discussion and Analysis Risk Management | SF Credit Risk
Freddie Mac 2015 Form 10-K 91
the loan. We also implemented new tools, such as our proprietary Quality Control Information Manager, to
provide greater transparency into our customer quality control reviews. We also have a process of
targeted quality control sampling reviews of loans with certain characteristics. In January 2015, we
launched Loan Coverage Advisor, a new tool that allows our sellers to track significant events for the
loans they sell us, including when the seller obtains relief from its obligation to repurchase loans due to
breach of certain representations and warranties. Also, in October 2015, we announced Loan Advisor
Suite, which is a set of integrated software applications designed to give lenders a way to originate and
deliver high quality mortgage loans to us and to actively monitor representation and warranty relief earlier
in the mortgage loan production process. Further enhancements are expected in 2016.
If we discover that the representations or warranties related to a loan were breached (i.e., that contractual
standards were not followed), we can exercise certain contractual remedies to mitigate our actual or
potential credit losses. These contractual remedies include the ability to require the seller/servicer to
repurchase the loan at its current UPB, reimburse us for losses realized with respect to the loan after
consideration of any other recoveries, and/or indemnify us. At the direction of FHFA, we implemented a
new remedies framework for the categorization of loan origination defects for loans with settlement dates
on or after January 1, 2016. Among other items, the framework provides that "significant defects" will
result in a repurchase request or a repurchase alternative, such as recourse or indemnification.
At the direction of FHFA, we made a number of changes to our representation and warranty framework
for our purchases of conventional mortgage loans in recent years. FHFA may require further changes to
the framework in the future. Under the revised framework, sellers are relieved of repurchase obligations
for breaches of certain representations and warranties for certain types of loans, including:
• Loans with 36 months (12 months for relief refinance loans) of consecutive, on-time payments after
purchase, subject to certain exclusions;
• Loans that have established an acceptable payment history; and
• Loans that have satisfactorily completed a quality control review.
As part of the revised framework, we also made changes that provide additional clarity on life-of-
mortgage loan exclusions from repurchase relief. These changes are designed to provide sellers with a
higher degree of certainty regarding their repurchase exposure and liability on loan sales to us.
In February 2016, at the direction of FHFA, we published guidelines for a new independent dispute
resolution process for alleged breaches of representations and warranties on loans sold to us. Under the
new process, a neutral third party resolves demands that remain unresolved after the existing appeal and
escalation processes have been exhausted.
The tables below show the credit profile of the single-family loans we purchased or guaranteed in the last
three years.