Last year, mortgage lending slowed to a crawl. So, the lending industry had some extra time on its hands. Fannie Mae and Freddie Mac took advantage of some of that extra time to go over the loans they purchased in the sizzling hot market of 2020-21. During those frenzied months, underwriters were under pressure to close high volumes of loans.
When the dust settled, Fannie and Freddie found plenty of loans whose underwriters missed some things, perhaps not thoroughly checking the borrower’s documents. These errors could lead to flawed estimates of a borrower’s risk.
With nearly $10 trillion of loans issued in the hot market, the number with defects adds up to some $25 billion. Fannie and Freddie can’t hold these bags. Their legal standards rule them out. So they send these hot potatoes back to the lenders.
Continue reading “What’s a “Scratch and Dent” Mortgage?”