![]() ![]() The event also served as the launch of NYU Law’s Classical Liberal Institute (CLI), a new center studying core conceptions of limited government and private property in a wide range of modern contexts including political and corporate governance, taxation, takings, intellectual property, and different forms of regulation. Four separate panels focused on the reorganization of Fannie and Freddie, recent litigation surrounding the Treasury Department’s decision to “wind down” the two entities and the legal issues involved, and economic policy and future prospects for Fannie and Freddie in light of proposed House and Senate legislation. ![]() ![]() ![]() On September 20, the daylong conference “ The Future of Fannie and Freddie,” co-sponsored by the Classical Liberal Institute and the NYU Journal of Law & Business, featured experts on law, finance, and economics examining the challenges to investment in the government-sponsored entities Fannie Mae and Freddie Mac. Kauffman said Freddie has estimated that assessing alternative credit data like rent payment history in loan purchase decisions and using other types of analysis like using trended data could result in 17,000 additional Black and Latino borrowers qualifying per year.įannie's positive rent payment program has helped 10,000 borrowers establish credit, Doshi said.īoth Freddie and Fannie have recently established special purpose credit programs and also are working with lenders that have their own SPCPs, the two executives noted.Mario Rizzo, associate professor of economics and co-director of the Classical Liberal Institute, with Professor Richard Epstein, the institute's director One study found mortgages Freddie Mac purchased without the use of data validation tools have an average defect rate of 9.6%, compared to 2.3% to 8.5% for those processed using them.Īlso during the panel, the GSEs provided updates on their efforts to reduce the stubbornly wide racial homeownership gap using new methods aimed at serving a broader range of borrowers. Kauffman noted that Freddie is working to find ways to reduce defect risk through technology, examples of which include digital verifications of data such as will be available through its new automated income assessment tool.įreddie and Fannie have introduced a growing set of digital validation tools over the years and sometimes provide representation and warranty relief for certain loan data. A recent analysis of loan defect rates in 20 by Freddie Mac found that on average purchase mortgages had a 36% higher incident of defects. The high number of loans with repurchase risk is unlikely to be a constant, said Devang Doshi, SVP of capital markets at Fannie Mae, noting that the more the pandemic-era origination boom that was driven by low rates recedes, "the less this is going to be a problem for you as a lender."īut so long as the market is purchase-oriented, repurchase risk may remain somewhat elevated per loan. Higher rates have prevented using the preferred way of resolving a defect, by reselling the loan the current coupon, and lenders have had to take deeper losses on repurchases as a result.įannie and Freddie can't simply agree to absorb loan defect risk because they need to protect their finances so that they can fulfill their roles to support the broader market in tough times, executives said. The GSEs already do offer indemnification in some circumstances, usually when the defect is considered lower on the scale of materiality drawn up in past industry negotiations. ![]()
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