Sunset Provisions on Reps and Warrants: Can They be More Flexible While Still Protecting the GSEs?

Brief

Sunset Provisions on Reps and Warrants: Can They be More Flexible While Still Protecting the GSEs?

Abstract

Loans sold to investors must meet certain quality standards, and lenders who sell loans to the government-sponsored entities (GSEs) promise that they are delivering loans that meet specific underwriting and eligibility requirements. These lender representations and warranties are a contract, and when breached, entitle the GSEs to pursue specific actions, such as a loan repurchase or put-back, whereby the seller must buy back the poor-quality loans. Increasingly, lenders cite uncertainty about potential exposure to GSE repurchase requests for the tight credit box.

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