A Look at Fannie Mae and Freddie Mac’s Updated Brokered Loan Policies

In November 2023, both Fannie Mae and Freddie Mac released updates to their respective policies governing loans involving brokers/correspondents. With six months of experience under these new policies, we provide below both a summary of those policies and thoughts on potential impacts.

Summary of Updates

Fannie Mae follows a Delegated Underwriting and Servicing (DUS) business model, where certain lenders have the authority to underwrite, close, and service loans on behalf of Fannie Mae. The updates to Fannie Mae’s policies now require brokered loans to be pre-reviewed and approved by Fannie Mae prior to a Rate Lock.

Conversely, Freddie Mac’s business model employs the Optigo network, a select group of Freddie Mac approved lenders, to provide flexible financing to borrowers. The updates to Freddie Mac’s brokered loan policies are much more extensive than Fannie Mae’s. These updates do not supersede, but rather, supplement existing policies.  The updated policies are focused on Optigo lenders’ interactions directly with borrowers and are intended to ensure data quality and integrity and maintain chain of custody.  Brokers/correspondents affiliated with Optigo lenders are subject to these updated policies.  A broker/correspondent refers to an intermediary (individual or entity) between a borrower and a Freddie Mac-affiliated Optigo lender that facilitates financing of a property.

The key updates to the Freddie Mac policies include:

• For Conventional, Targeted Affordable Housing and Senior Housing Loans:
  • • To request a quote from the Optigo lender, a borrower is now required to disclose to the Optigo lender the broker/correspondent firm and individual broker(s).
    • If a broker/correspondent is involved in a quote request, a confirmation from the borrower must be included with the quote request to state that the Optigo lender is the sole lender authorized to submit the loan to Freddie Mac.
    • The Optigo Lender’s Fee Certification – Conventional & Affordable form must be submitted by the borrower with the delivery to the Optigo lender of the full underwriting package; previously, this form was submitted at the final delivery. The form certifies that only the Optigo lender has or will receive fees or compensation related to the origination of the loan, and any amounts paid by the Optigo lender to the broker/correspondent must be disclosed to Freddie Mac.

• For Small Balance Loans, broker/correspondent information must be completed by the Optigo lender at the time of loan application.

• The borrower must provide due diligence documentation (e.g., rent rolls, financial statements, etc.) directly to the Optigo lender, and the broker/correspondent must not be included in the chain of custody of such documentation. Further, the borrower and Optigo lender must communicate directly regarding due diligence and other underwriting matters.

• Optigo lender-delegated property inspections require pre-approval by Freddie Mac. Involvement of a broker/correspondent will determine if a property is eligible for a delegated inspection.

• Before an Index Lock, all loans submitted through a broker/correspondent must adhere to the following:
  • • A preliminary property inspection must be completed by the Optigo lender, which includes a visit to the property, meeting with management of the property, examining the common areas, and viewing a sample of vacant units.
    • The borrower must submit due diligence documentation directly to the Optigo lender, which includes current rent rolls, operating statements, and other property information.
    • An Index Lock Certification for Broker/Correspondent Loans must be submitted to Freddie Mac with the signed Index Lock Agreement by the Optigo lender.

Potential Impact of Policy Changes

The changes to Freddie Mac’s brokered loan policies impact borrowers, brokers, and lenders.  Since borrowers are now responsible for submitting due diligence documentation directly to the Optigo lenders, the responsibility has shifted from the broker to the borrower to provide accurate and complete records.  The borrower may not have as much experience in compiling pertinent financial documents whereas one of the broker’s primary responsibilities is to compile these documents to provide to the lender.  Further, the burden is on the Optigo lender to verify the accuracy of the due diligence materials.  Requiring the borrower to deliver due diligence materials directly to the Optigo lender may not eliminate the risk of documents being altered prior to receipt by the Optigo lender, however.  As a result, Optigo lenders may need to assess their current procedures and potentially consider what, if any, enhancements should be added to the review process and procedures of such documents.  Additionally, it is not clear whether brokers/correspondents are expected to monitor communications between applicants and agents to confirm their limited role in matching applicants and Optigo lenders.

Changes to the inspection policies ensure consistency and accuracy of the examinations.  Similar to the updates to the due diligence practices, requiring pre-approval allows Freddie Mac to control the integrity and quality of such inspections.  These changes also may impact the timing of the loan approval process, potentially prolonging the process.

Written by: