In this month’s update: It’s official, the Fed has officially cut rates! Will this bring the push our industry needs this year? We also look at new fraud reporting requirements from Freddie and Fannie’s new multifamily LTV requirements that could raise occupancy fraud concerns.
Lower Interest Rates are Here
As expected, the Federal Reserve cut its benchmark interest rate earlier this month by 50 bps to a range of 4.75% to 5%. A majority of the market was predicting a rate cut that size, according to First American Chief Economist Mark Fleming. Outside of the emergency rate reductions during COVID-19, the last time the Federal Open Market Committee (FOMC) cut by 50bps was in 2008 during the global financial crisis. September’s cut was the first since March 2020. Post-rate cut announcement, mortgage rates dropped to 6.09% last week, the lowest level we’ve seen since February 2023. Will this be the end-of-the-year push our industry needs to ramp up volume? Will potential borrowers see this as the push they need to get off the sidelines and start buying? Let’s see how the next 3 months play out.
FraudGuard and Multifamily Occupancy Misrepresentation
As we know, at the end of last year Fannie Mae made significant changes to the LTV for owner-occupied multifamily homes. Historically the down payment requirements for these types of properties were higher than those for single-family homes. However last year, Fannie Mae reduced the down payment requirement to 5% across all owner-occupied multifamily properties. This was designed to help first-time buyers, but it may also encourage some less-than-honest investors to misrepresent themselves to lenders.
Occupancy fraud has always been a significant concern within the mortgage industry characterized by borrowers misrepresenting their intent to occupy a property as their primary residence when they plan to use it as an investment property. One of the main motivations for committing occupancy fraud is the desire to obtain better loan terms including rate, cost, and LTV. As such, borrowers may misrepresent their intentions to secure these benefits, especially during times of economic uncertainty or rising interest rates. The First American Data & Analytics FraudGuard® tool has the ability to capture all types of occupancy misrepresentations including owner-occupied 2-4 LTV low down payment programs.
Freddie Mac Updates Servicing Guidelines Fraud Activity
Freddie recently updated its requirements for reporting suspected and confirmed fraud. The changes increase fraud reporting requirements for servicers, including a new obligation for seller/servicers to perform sufficient due diligence before submitting a referral to determine whether a reasonable basis exists to conclude fraud or suspicious activity may have occurred. Sellers/servicers are now also required to maintain and share records of fraud types and trends, fraud cases, and positive hits tied to the “exclusionary list.” The GSE also enhanced its Office of Foreign Assets Control (OFAC) program requirements, including greater specificity of the required frequency of OFAC screening and which parties must be screened.
OFAC monitoring is built into the First American Data & Analytics FraudGuard solution and it is also available as a standalone OFAC API, which makes it more adaptable for servicers.
Freddie Buybacks Starting to Creep Back Up
Freddie buybacks rose to $430 million in Q2 2024, a 29.1% increase from Q1. However, Fannie buybacks dropped to $268.5 million last quarter, a 27.7% decline from Q1. Earlier in the year, Freddie commented that the agency “heard feedback from the industry and took it seriously, enhancing our communication, improving collaboration, and providing specific feedback to our lenders. We also enhanced our own processes. This year, we continue to address this issue by launching a fee-based alternative pilot program. We are seeing results from these efforts in fewer repurchases and greater efficiencies for both sellers and Freddie Mac.”
About This Blog:
What We’re Watching is a monthly blog of industry news curated by Brian Haber, who monitors the mortgage market for First American Data & Analytics.