The CMLA: Mortgage Indemnifications Key to Increasing Credit, Preserving Risk Control

WASHINGTON - Oct. 27, 2014 - PRLog -- The Community Mortgage Lenders of America (CMLA) continued its push for expanding mortgage credit for moderate income, minority, single parent and first time buyers in separate meetings with White House and Interagency staff and with Freddie Mac executives.

A CMLA delegation, led by new Chair, Paulina McGrath, President of Republic State Mortgage Co., called for changes in the GSE loan review process to reduce rote repurchase demands for non-serious loan flaws. In an October 15, 2014 White House/Interagency meeting, McGrath stressed, “The impact of current GSE policy is, unfortunately, less credit to worthy borrowers. Lenders should be given an opportunity to correct minor flaws in performing loans. If these flaws cannot be corrected, indemnification should be the preferred option, rather than repurchase.”

Specifically, the CMLA is seeking a number of changes in how the GSEs review loan quality that include:

-- Eliminating rote demands that lenders buy back or repurchase performing loans with minor defects;
-- Creating specific standards of materiality for errors in loans that clearly distinguish between fatal and minor flaws;
-- Working with the lending industry to boost lender guarantees against loan defaults or indemnifications, with a goal of significantly reducing repurchase demands within the next 3 years.

In a similar discussion with Freddie Mac Executives on October 24, CMLA lenders cited examples of slight loan defects that have prompted repurchase demands. This practice, they said, results in lenders extending credit only to the safest credit quality borrowers.

Indemnification, McGrath said, “is the best solution for everyone and it is both good business and good policy. The borrower has the financing they needed to purchase their home. The security holder continues to receive interest payments on the loan. The GSE continues to receive the loan guaranty fee, with an indemnification agreement in place in the unlikely event the borrower defaults on the loan.”

CMLA Executive Director Glen Corso said, “We’re pleased to have had the opportunity for a frank discussion with Freddie Mac and share with them how the lack of clarity in quality review standards is hurting all mortgage lenders. We were equally pleased to understand that they, together with Fannie Mae and the Federal Housing Finance Agency, are working to provide lenders with clear guidance on defects and the remedies that the various levels of defects will require before year end.”

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About the CMLA

CMLA is the only trade association solely dedicated to advocating for independent, community-based residential mortgage lenders. Founded in 2009, The CMLA is committed to the preservation of a thriving independent mortgage banking sector, which increases competition in the industry and, thus, provides borrowers with greater choice and lower costs. The CMLA membership includes lenders nationwide that, collectively, originate more than $100 billion worth of residential mortgage loans annually. The CMLA works to ensure the interests of its members are effectively represented before members of Congress, Federal regulators and the Executive branch.

For more information, please visit www.thecmla.com and/or direct policy and member inquiries to Glen Corso at 925.323.7084