On October 19th, Fannie Mae announced a series of innovations that will collectively have a positive impact on the loan origination process.
The ultimate objectives of these innovations are to provide more access to mortgage financing to prospective home buyers and to help simplify current loan processing procedures.
Outlined below are three such examples of these innovations:
1) Data Validation Available via Desktop Underwriter – at present, loan originators and processors must obtain a voluminous amount of documentation from a prospective borrower during the processing & underwriting of the loan application.
For example, in order to validate a borrower’s income, copies of recent pay stubs and other documentation must be produced and uploaded to the loan file. In 2016 (no firm date is established yet), Fannie Mae will begin offering income data validation services to lenders via the Desktop Underwriter (DU) system.
When using DU, this system will interface with data provided by Equifax’s “The Work Number” which will negate the need for the lender to also obtain pay stubs and other income documentation. This will help streamline the underwriting of the loan and help reduce the frequency of mortgage fraud related to false income documents being generated.
Going forward, it is envisioned that other validation services (i.e. asset information, bank statements, tax returns, etc.) could be offered via DU to make the loan origination process even more efficient.
2) Trended Credit Data – in mid-2016, Fannie Mae will require lenders to use trended credit data when underwriting loans via Desktop Underwriter (DU). This data will be provided by Equifax and TransUnion and will provide lenders with information on the monthly payment amounts that a consumer has made on their credit accounts (i.e. credit cards, mortgages, student loans, etc.) over time. This more robust data and payment histories will enable lenders to make a more thorough analysis of a prospective borrower’s credit history. The objective is to qualify more borrowers based on an analysis of their past payment histories.
3) Nontraditional Credit History in Desktop Underwriter (DU) – At the present time, prospective borrowers that lack a traditional credit history pose a problem for lenders in qualifying them for mortgage financing. Basically, a manual process is employed to underwrite such loans.
In 2016 (no firm date is established yet), DU will be enhanced to enable lenders to underwrite loans for borrowers with nontraditional credit via this automated underwriting system. This will result in a more efficient process and consistent underwriting results.
There are quite a number of automated tools now available to lenders in the processing, underwriting, review and re-verification of loan applications. Lenders must assess their overall needs and perform a cost-benefit analysis for utilizing such tools. If a function can be accomplished more efficiently and effectively via technology it certainly makes sense to utilize that technology as part of a lender’s operating procedures. The innovations outlined above are good examples of how technology can help simplify procedures as well as making them more consistent and accurate.
The game has changed – you need to play different!