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Will Fannie Squeeze Out Technology Providers?

Many in the industry are concerned about Fannie Mae's plan to bring the Desktop Underwriter decision to the point-of-sale, scrub it for fraud and order the services to fulfill the loan because this initiative cuts several players out of the process and is not too far away from the creation of a Fannie Mae loan origination system.

At the 8th Annual Mortgage Technology Conference here, David Flaxman, senior vice president of e-solutions at the GSE, announced a plan that would put Fannie directly in the origination space in attempt to cut $500 out of the loan process. The GSE would create private-label websites in the name of the lender that go out to the consumer.

Specifically, the flow of the system would work in such a way that the consumer would enter their information into the website, a DU decision would be rendered, that decision would be checked for fraud, and lastly all services needed to fulfill that loan would be automatically ordered based on the DU findings. This move has some scratching their head wondering if Fannie would remain a GSE or become a GSE, a lender and a technology vendor all at the same time.

"I was surprised by the comments made by David Flaxman at the Mortgage Technology Conference," said Cy Brinn, chief executive officer at GHR Systems, Wayne, Pa. "If I understood his slides and comments correctly, it appears that Fannie Mae is now in the business of providing lenders with websites and other loan origination technology. Mr. Flaxman said that Fannie Mae is expanding Desktop Underwriter to enable lenders to use Fannie Mae's decisioning technology for automating lender-specific decisioning and the pricing of any loan. I assume this means providing technology to enable lenders to underwrite and price loans that lenders will either put into their portfolios or sell to other secondary market investors.

"If Fannie Mae is engaging in either of these business practices, I will be very concerned," he continued. "It seems to me that such business practices are well outside the boundaries of Fannie Mae's mission to increase homeownership for Americans. Our employees work hard to keep GHR ahead of the competition in the lending automation market. It would be unreasonably challenging for us to have to compete with Fannie Mae to deliver technology to America's mortgage lenders. Fannie Mae's low cost of capital, and their leverage with lenders through the guarantee fee pricing process, would give them a very unfair advantage when competing with lending technology companies like GHR."

Mr. Brinn expects to start dialogue with Fannie Mae to clarify their position. "We will need to talk to Fannie Mae directly to get a detailed understanding of what they are now doing, or planning to do, in the area of providing technology to lenders," he said.

"It is certainly reasonable for Fannie Mae to use automation to determine if Fannie will buy a specific loan or not, but if they are going to expand their technology products and services to automate other aspects of lenders' origination processes, I think a lot of technology firms, service providers and mortgage lenders are going to voice their concern."

"When Fannie rolled out DU there was the fear that they would take over the industry, but it didn't," said another mortgage technology vendor who does not want to be named for fear of retaliation from Fannie Mae. "As for this move to go into the origination space, we're very skeptical because they don't have full knowledge of how the origination space works. So, to think that they're going to save $500 a loan and everyone is going to migrate to this system is ludicrous.

"In addition, this is also totally outside of their charter," the vendor said. "They were formed to make homebuying more affordable and by them adding more technology at the point-of-sale, it's not just the consumer going to Fannie, it's the vendor also being forced to incorporate that technology in their platform. What does increasing affordable housing have to do with changing the entire origination process? Are they going to incorporate closing at some point too? What's next?"

With all of this concern is it possible Fannie Mae will back down from their plan and goal to cut $500 out of the process by going to the point-of-sale with this new technology platform? "In the long run I think they're going to roll it out but they're going to face a lot of questions," the vendor answered. "There was a lot of scrutiny when they introduced DU and some of what they did had value but if they're trying to cut everyone out of the chain that's a different story."

Fannie was contacted to respond to the issues circling around this new plan, but would not offer any comment.

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