Freddie Mac’s New Public Records Search Rules: What Lenders Need to Know

On August 15, 2024, Freddie Mac Multifamily introduced significant updates to its mortgage origination and servicing requirements, focusing on public records searches. These changes aim to enhance transparency, mitigate risk, and standardize practices across Freddie Mac-backed mortgage products. This article dives into the details of these updates and their impact on lenders, servicers, and the broader mortgage landscape.

The Purpose Behind the Updates
Freddie Mac’s updated requirements align public records search protocols across various mortgage products, including small balance loans, Conventional, and Targeted Affordable Housing mortgages. By standardizing these processes, Freddie Mac aims to:

a) Reduce variability in public records searches.

b) Minimize risks stemming from incomplete or inconsistent data.

c) Streamline procedures for Seller Applications and Transfer of Ownership requests.

This unified approach ensures a consistent level of scrutiny across all Freddie Mac-backed products, reinforcing trust and reliability.

Key Changes in Public Records Search Requirements

1: Expanded Scope for Small Balance Loans
Previously applicable only to small balance loans, public records search requirements now extend to Conventional and Targeted Affordable Housing mortgages. This ensures uniformity across Freddie Mac’s offerings.

2: Specific Search Requirements
Lenders and servicers must conduct comprehensive searches, including:

a) UCC filing

b) Federal and state tax liens

c) Judgments and litigation records (state and federal)

d) Bankruptcy filings

e) OFAC (Patriot Act) compliance

These measures help identify potential risks that could affect loan performance.

3: Criminal History Searches
The addition of criminal record checks provides an extra layer of due diligence, ensuring that risks related to borrowers’ or stakeholders’ criminal histories are adequately assessed.

Timelines and Documentation Protocols
Freddie Mac has implemented strict timelines and documentation requirements to ensure compliance:

a) Validity Period: Public records searches must be conducted within 60 days prior to mortgage origination or servicing requests.

b) Detailed Documentation: Results from searches—covering criminal history, bankruptcies, UCC filings, tax liens, and litigation—must be thoroughly documented and included in the mortgage file.

This documentation must be readily available for Freddie Mac’s review, ensuring a transparent and accountable process.

Guidelines for Search Conduct and Delivery
To maintain the integrity of the search process:

a) Third-Party Providers: Lenders and servicers must utilize reputable third-party search companies specializing in comprehensive public records and criminal searches.

b) Direct Delivery: Search results must be delivered directly to lenders or servicers, bypassing intermediaries to ensure accuracy and reliability.

Impact on Mortgage Types
The updates affect several mortgage categories:

a) Conventional Mortgages: Stricter search requirements enhance risk assessment.

b) Targeted Affordable Housing Mortgages: Standardized procedures ensure consistency, particularly critical in highly regulated affordable housing projects.

c) Small Balance Loans: Although already subject to rigorous standards, the alignment with other mortgage types ensures uniform due diligence.

Compliance Strategies for Lenders and Servicers
To adhere to Freddie Mac’s new requirements, stakeholders should:

a) Update Internal Processes: Incorporate the 60-day validity period and revised search protocols into workflows.

b) Train Staff: Provide comprehensive training on the expanded public records search requirements.

c) Partner with Approved Providers: Establish relationships with third-party search companies that meet Freddie Mac’s standards.

d) Leverage Technology: Use automated workflows and API-enabled solutions to streamline search operations and reduce processing times.

Overcoming Potential Challenges

a) Processing Delays: Expanded search requirements may increase processing times. Initiating searches early and working with experienced providers can mitigate delays.

b) Cost Increases: Partnering with vendors offering volume discounts and integration with Loan Origination Systems (LOS) can help manage costs.

c) Accuracy Concerns: Regular audits and data cross-checks can ensure the completeness and reliability of search results.

Benefits of the Updated Requirements
Freddie Mac’s revised protocols bring several advantages:

a) Enhanced Risk Management: Comprehensive searches identify potential risks early, reducing defaults and legal complications.

b) Improved Consistency: Uniform standards simplify processes for diverse mortgage portfolios.

c) Informed Decision-Making: Access to complete and current information aids better judgment in mortgage origination and servicing.

Conclusion:
Freddie Mac’s new public records search requirements mark a significant step toward greater transparency and risk mitigation in the mortgage industry. By standardizing protocols and enhancing due diligence, these changes benefit lenders, servicers, and borrowers alike. To stay ahead, stakeholders must embrace these updates, refining processes and leveraging technology to ensure compliance and efficiency.

By implementing these measures, mortgage professionals can not only navigate regulatory changes but also position themselves as trusted partners in Freddie Mac-backed transactions.

Source: https://www.wolterskluwer.com/en/expert-insights/mortgage-lender-requirements-public-record-search

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