Fannie Mae (FNMA/OTC) announced that it will eliminate fees on its Desktop Underwriter® automated underwriting system and Desktop Originator® tool, enhance its EarlyCheck™ loan verification tool, and soon introduce a new loan delivery system.  These changes are designed to help its customers originate mortgages with increased certainty, efficiency and lower costs. 

“We continue to strive to have lenders choose Fannie Mae because we provide the most insightful, innovative and effective tools in the industry,” said Andrew Bon Salle, Executive Vice President, Single-Family Business at Fannie Mae. “For years, our technology tools have been the tools of choice for mortgage lenders across the industry.  We want to continue to provide value to our lenders and we don’t want technology fees to get in the way of lenders using our technology to its full potential. That is why we have introduced tools such as Collateral Underwriter, EarlyCheck and Servicing Management Default Underwriter at no cost to lenders or servicers, and why today we are also eliminating our DU fee. We will continue to innovate to provide extraordinary value to our partners and help them succeed.”

The company announced the following:

• Enhanced EarlyCheck – This fall, Fannie Mae will update its EarlyCheck application with additional loan-level data integrity capabilities, to help lenders have confidence that the loans they deliver to Fannie Mae have accurate, complete data and meet Fannie Mae’s requirements.  These updates will align with the data standards in Fannie Mae’s Loan Delivery tool, meaning lenders can have more confidence that loans can be delivered to Fannie Mae prior to doing so.  Over time, Fannie Mae will continue to update EarlyCheck with additional capabilities, including loan eligibility rules, so that lenders have additional certainty that the mortgages they deliver meet Fannie Mae’s standards.
• DU fees eliminated – Fannie Mae currently offers Collateral Underwriter™ and EarlyCheck to lenders at no charge to encourage lender use and drive industry-wide collateral and data quality.  Effective immediately, Fannie Mae will offer Desktop Underwriter (DU) and Desktop Originator on a no-fee basis, as well.  Fannie Mae is removing these fees to allow more lenders to access the value of DU in their underwriting processes and to enable the company to continue to bring innovative solutions to the mortgage process, driving certainty, loan quality and greater efficiency.
• A new loan delivery interface – Fannie Mae is currently developing a new platform for lenders to deliver loans.  This new platform is designed to provide lenders with a more intuitive and easier-to-navigate user interface, enhanced reporting capabilities, and improved delivery edit messaging that will help lenders deliver loans more efficiently and with greater transparency and certainty.  The new loan delivery system is expected to be available to lenders in late 2015, and Fannie Mae will provide guidance to customers over the coming weeks.

Fannie Mae’s suite of risk management tools was recently integrated to help lenders underwrite and deliver quality loans with greater certainty and transparency:

• Desktop Underwriter – Desktop Underwriter, the leading technology tool that supports lenders’ underwriting processes across the mortgage industry, provides lenders a comprehensive credit risk assessment that determines whether a loan meets Fannie Mae’s eligibility requirements.  Over 1,800 lenders use DU in their underwriting process to determine whether a loan meets Fannie Mae’s eligibility requirements.
• Collateral Underwriter – Since being introduced to the market in early 2015, over 1,000 lenders have registered to use Collateral Underwriter to streamline their appraisal review processes and reduce risk.  To date, over 300,000 appraisals have been reviewed using the tool. 
• EarlyCheck – Over 600 lenders are registered to use EarlyCheck to evaluate loan eligibility prior to delivering mortgages to Fannie Mae.  Nearly 60% of loans delivered to Fannie Mae in the first quarter of 2015 came through an EarlyCheck review first.

In today’s market, lenders are looking for advantages that can help them serve more borrowers while managing risk. Fannie Mae offers lenders a number of flexibilities to help them expand access to credit for creditworthy borrowers and support sustainable homeownership.

Flexible Sources of Funds. Fannie Mae loan generally does not require any minimum contribution from the borrower’s own funds on one-unit properties to be occupied by the borrower (including condos and PUDs). Gift or grant funds may be used for all or part of the down payment and closing costs.

Parents want to help their children purchase a first home? No problem, as long as a gift letter is provided and other applicable requirements are met. Funds can be a gift from the borrower’s spouse, child, or other dependent, or any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or a fiancé, fiancée, or domestic partner. (The donor may not be, or have any affiliation with, the builder, developer, real estate agent, or any other interested party to the transaction.)

Other sources of funds that are allowed to cover the down payment and closing costs include: employer assistance; a gift or grant from an organization such as a church, municipality, nonprofit organization (excluding credit unions), and public agencies.

For more information and resources, see Selling Guide sections B3-4.3-04: Personal Gifts and B3-4.3-06: Donations from Entities.

97% LTV Loan Options. According to consumer research conducted by Fannie Mae, the primary barrier to homeownership for first-time home buyers is saving money for the down payment and closing costs. Fannie Mae offers financing options up to 97% LTV to help home buyers who would otherwise qualify for a mortgage but may not have the resources for a larger down payment. These options are designed to help lenders serve creditworthy borrowers and expand business opportunities.

Other Flexibilities. Fannie Mae is focused on supporting broad access to mortgage credit by offering key flexibilities for creditworthy borrowers regardless of loan product or LTV. We offer Selling Guide flexibilities related to income, assets, credit, and even energy efficiency improvements, for eligible transactions up to the applicable maximum LTV. View the lender job aid for a summary and related helpful information, including how to enter information for loan casefiles in Desktop Underwriter®.

Providing flexibilities to help our lenders serve more borrowers while managing risk is just one way Fannie Mae is working hard to be America’s most valued housing partner. 

Share your thoughts with Fannie Mae. Use Fannie Mae Fast Feedback to tell us your thoughts about how Fannie Mae can help your organization achieve your business objectives.

The need to expand access to credit is a point of broad consensus among regulators, policymakers, President Obama’s administration, academics, consumers and lenders. Over the past several years, regulators have made great strides in crafting responsible underwriting guidelines, developing servicing standards and eliminating certain products and practices to ensure long-term success for homeowners. Regulators have also been working to create clarity and certainty for lenders, although this is still a work in progress.

And yet as we work to get housing back on track, a number of reliable data sources, including the Mortgage Bankers Association and the Urban Institute, confirm that credit is too tight. This has sparked a debate as to how best to increase access to credit for qualified borrowers.

While current regulations may still be in need of some tweaks, the next opportunity is not to loosen underwriting guidelines or reintroduce risky products. It is to begin serving more qualified borrowers who are slipping through the cracks of the current credit-scoring models.

Today, lenders use credit-scoring models sanctioned by the Federal Housing Administration, Fannie Mae and Freddie Mac. But in the past ten years, technology has matured, increasingly granular data has become available, and consumer behaviors have changed. Using updated and more sophisticated models would help lenders reach significantly more consumers, many of whom would qualify for mortgages even in today’s environment of tight credit standards.

According to both Fair Isaac and VantageScore, the two largest developers of credit-scoring models, there are tens of millions of people for whom the current models cannot generate a score because they don’t meet the current key credit-scoring criteria, which is to have at least one credit account active for a minimum of six months or to have had credit activity within the past six months.

The newest model from VantageScore uses a special segmentation technique that recognizes the value of data up to and greater than 24 months old. This allows VantageScore to generate scores for 30 to 35 million of these consumers, 7.6 million of whom receive scores above 620. That is 7.6 million potential borrowers who would pass the first test of eligibility just by using an updated scoring model.

Older credit scoring models not only fail to capture all qualified borrowers, they may also eliminate them inappropriately. This is because older models do not reflect current consumer behavior. A good example is the growth in student loans. Newer models are able to extrapolate more predictive insight from those accounts than in the past. In addition, the newer models do not penalize consumers for paid debt collections because the attributes of today’s more granular data provide greater predictive strength.

Newer, more precise models may also help lower the risk premium on conventional loans because a borrower’s credit score is used to determine the premium. This would potentially lower the interest rate on many mortgages, helping consumers to better afford monthly payments.

Moreover, using newer, more accurate credit models would help to increase the number of eligible borrowers within the U.S. without weakening today’s underwriting parameters by changing debt-to-income, loan-to-value, or minimum score cut-offs.

It is encouraging to see that this issue has been gaining traction in Washington. The Federal Housing Finance Agency has asked the GSEs to consider modernizing their credit scoring requirements and has included this initiative in its 2015 scorecard. In addition, Secretary of Housing and Urban Development Julián Castro has called for expanding mortgage credit to borrowers with non-traditional credit files and promised to review ways to incorporate alternative credit-scoring models into FHA’s automated underwriting system.

This is a major undertaking, and there is certainly much work to be done. First the GSEs and FHA must validate the newer models. While certain consumers may be underscored today, we must make certain they are not over-scored by any new model.

Any change will come with implementation and technology costs, but it will also bring opportunity. Recent research from VantageScore shows that the GSEs stand to earn up to $500 million more each year by serving a larger pool of creditworthy borrowers. Lenders and others in the housing industry also stand to make additional revenue. Serving more creditworthy consumers is a true win-win for the entire market.

Updating credit-scoring models is a viable way to responsibly broaden access to credit. It is yet another actionable step towards sustaining progress in the ongoing housing recovery.

Debra W. Still is president and chief executive of Pulte Financial Services.