Mortgage Notes: Pulte Decides; GSE Repurchase Claims and DSCR Fraud

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August 26, 2026 | Federal Housing Finance Director William Pulte reappeared on X this past week, promising “decisions” on highly technical areas like loan level pricing adjustments (LLPAs) for Fannie Mae and Freddie Mac. But could director Pulte expound further on just why LLPAs need to be changed at this point in the home price cycle? After all, most home prices are falling.

“We are nearing the end of our review of certain LLPAs. Decisions coming soon,” he wrote last week on X. The word “certain” suggests that the changes might not be broad-based, notes Ian Katz of CapAlpha.

“Though it’s not clear what Pulte will do, the assumption among housing policy watchers is that he will try to reflect the administration’s desire to cut home-purchasing costs and show midterm voters that the administration is addressing “affordability” concerns,” Katz writes

Of note, the Trump Administration just fired another group of senior executives from Fannie Mae, including Devang Doshi, the Senior Vice President of Capital Markets. How is this helpful to affordability? Director Pulte seems to be positively disposed toward Freddie Mac, but entirely hostile to Fannie Mae. Meanwhile, some serious operational problems are accumulating inside the GSEs, as we discuss below.

Our view of all of this is that the Trump Administration is desperately looking for "wins" in every corner of the government, but that does not mean that there will be good decisions. One Treasury insider asked yesterday if buying Ginnie Mae MBS would force home mortgage rates down. Our answer was no, not with the bond vigilantes clearly in the ascendance on the long end of the yield curve.

Thirty Year Fixed Rate Mortgage - Treasury 10 Year Note Yield (%)

Note in the chart above from FRED the increased volatility in the secondary market spread since 2008. What are tens or hundreds of billions in Treasury purchases of MBS compared to the trillions in loans and securities that GSEs owned in portfolio before 2008? Lunch money.

More Inaction on Credit Scores

Yet another area where "decisions" may be forthcoming in Washington is credit scores, a magical realm where the government's ability to shape outcomes is very limited. It is likely that some type of decision from the Trump Administration will be announced regarding the use of multiple credit scores in underwriting residential mortgages prior to the midterm elections. Will these changes help consumers? Nope.

As we noted back in June (“Mortgage Notes: Getting Consumer Credit Scores Right”), just about every credit score produced by the mortgage industry is wrong because the underlying data files are incomplete. Having the FHFA require the use of multiple credit files or scores does not fix the basic problem.

The triopoly of Experian, Equifax and TransUnion have no incentive to ensure that their credit data files on consumers are actually complete. Wonder why you never hear Democrats in Congress talk about this?

“If each bureau had a complete data set, each would produce effectively the same and correct credit score, so there would no longer be a need for a tri-merge report,” notes David Battany of Guild Mortgage, referring to the FHA mandated monopoly enjoyed by the three data repositories.

“When we see a tri-merge report with three very different scores, we know for a fact that at least two of the three scores are wrong, and possibly all three are wrong. However, we have no idea which ones are wrong and whether they are wrong to the high side or low side.”

Later this week, Brian Faux from FHA will be joining the MBA Credit Score Working Group to discuss FHA's implementation plans for VantageScore 4 and FICO 10T. Faux is a Director in the Office of Single-Family Program Development and has done much of the work to prepare for this transition. But no amount of talk about credit scores will fix the basic problem in the credit reporting industry, namely bad consumer data files. How is this OK?

GSE Repurchase Requests and Private Mortgage Insurance

Average losses on residential loans remain muted because of the upward pressure of inflation on assets prices in general on average, but that does not mean that there are no problems facing Fannie Mae and Freddie Mac.

Despite average gains in home prices nationally, prices for more than half of all homes were falling over the past year. This is part of the reason that loan repurchase claims by the GSEs against conventional lenders are slowly creeping higher -- albeit from a very low base. Lower home prices mean higher loss given default and higher loss mitigation expenses for the GSEs. The table below from the Fannie Mae 10-K shows repurchase claims though year-end 2025.

Fannie Mae | 2025 10-K

Fannie Mae reported repurchase claims of $269 million and $633 million for the three and six months ended June 30, 2026, respectively, and $243 million and $592 million for the three and six months ended June 30, 2025, respectively. These were for loans that were the subject of loss mitigation activity during the period that paid off, were repurchased or were sold prior to period end.

Some of these loans were liquidated either through foreclosure, deed-in-lieu of foreclosure, or a short sale. Loans may move from one category to another, as a result of the restructuring(s) they received during the period. But you can be pretty sure that FHFA Director Pulte and his political appointees have no idea about any of this or the growing risk that repurchase claims pose to the enterprises and conventional lenders.

A source inside the agency tells The IRA that some 80% of repurchase claims are due to the fact that the loans do not have the required private mortgage insurance (PMI). And the GSEs reportedly have no way of telling whether the PMI is actually active on a given loan.

Now you are probably thinking, how is it possible that a conventional loan does not have the necessary private mortgage insurance or PMI as required by the GSE guides and federal law? Consider some scenarios from actual repurchase cases:

The lender did not open an account for the PMI and the coverage was cancelled.
The PMI carrier rescinded the coverage based upon an insurance audit and did not inform the servicer.
The servicer collects the PMI but does not have the right account information to make the payment to the carrier.
The buyer of a conventional MSR does not have the correct PMI carrier for a given loan.
The servicer is not registered with the appropriate PMI carrier, must close old account and open a new PMI account.
The servicer stopped collecting the PMI from the borrower too early.
Based upon new appraisal value, the loan falls into PMI requirement based upon falling home price and rising LTV.

This last category is the most problematic for borrowers and the industry. As interest rates rise and home prices inexorably soften, literally millions of loans underwritten in the past five years at or near 80% loan-to-value will slip underwater and into the range where PMI is required. Average home prices rose low single digits, but approximately 53% of American homes lost value over a recent 12-month tracking period, according to Zillow.

When loans that lack PMI are identified by the GSEs, they will automatically put these loan back to the original lenders. Which lenders are the most exposed to falling home prices and related repurchase demands by the GSEs? The list below shows the top conventional lenders ℅ of our friends at Inside Mortgage Finance.

Notice please which top lenders are not on this list. Does "Seeing Around Corners" ring a bell? Why do you not want to be writing conventionals now? Repurchase risk. But you see lots of banks aggressively writing conventionals for a negative risk adjusted margin.

In addition to a lack of PMI, roughly 10% of repurchase claims by the GSEs reportedly involve occupancy fraud, which is usually when a borrower gets a residential mortgage and then immediately rents the property to a third party. Conventional borrowers are required to be the primary resident of the home.

Another 5% of GSE repurchase claims reportedly involve income fraud, where the borrower manufactures false documentation for required income. Vinnie puts you on the payroll at the restaurant four a couple of months. As interest rates are rising and loan volumes are falling, incidents of fraud are on the increase, sometimes with the active connivance of the lender. The shift away from refinance business and toward new purchase and business purpose inevitably boosts fraud.

DSCR Fraud Surges As Rates Rise

As incidents of income and occupancy fraud rise on conventional loans, in the world of business purpose loans for rental properties, borrowers are using different techniques to defraud lenders and investors. But the major Wall Street investment shops are pumping out new DSCR securitization deals as rapidly as possible.

DSCR investor loans represent roughly 30% to 50% of the broader non-qualified mortgage (Non-QM) and business-purpose loan (BPL) securitization market, which is on pace for over $75 billion to $100 billion in total 2026 issuance across dozens of individual institutional shelf transactions, according to National Mortgage Professional.

One of the favorite scams were hear about in the mortgage channel are borrowers who get a debt service coverage ratio (DSCR) loan, create an LLC to hold the title to the home, then live in the house and pay “rent” to the LLC. Is this loan fraud? To us the answer is yes.

A DSCR loan requires rental income to cover the mortgage payment (a ratio usually starting at 1.0 to 1.25), so applicants sometimes submit forged or inflated lease agreements showing above-market rent that the property does not actually command. The borrower then lives in the house as the primary resident, violating the terms of the loan.

A number of lenders have reported increasing incidents of fraud associated with DCSR loans, a not surprising development given higher interest rates and lower loan volumes. Some of the more popular scams include inflated appraisals and fake comps, altered or fabricated leases, recycled photos and phantom renovations, and altered bank statements to support loan applications.

At the beginning of 2026, property data firm Cotality reported that DSCR loan fraud is concentrated heavily in the investor property sector, where data estimates that 1 in every 43 investment property applications and 1 in every 27 multifamily applications show indicators of potential fraud.

“The percentage of refinances in the Cotality data set has increased year-over-year by 19%, yet the Fraud Index is up 1.5% over that time. This is significant because historically, refis bring a much lower risk of fraud than purchases,” said Matt Seguin, Cotality Mortgage Fraud Solutions senior principal.

“The two riskiest segments of the fraud index, investment properties (+34%) and multi-unit properties (50%), have jumped significantly over the last year as a portion of the overall application volume seen by Cotality."

We'll be publishing The IRA Bank Book for Q3 2026 on Monday. Happy Summer.