The following are excerpts from the April edition of Mortgage Technology magazine. To read the full story and much more,
It’s been two years since Fannie Mae kicked off the Collateral Data Delivery initiative, a program that would require lenders to submit appraisal reports on the properties backing mortgages sold to the government-sponsored enterprise. What started out as a way to collect and mine appraisal data has since evolved into an enormous undertaking by both Fannie and fellow GSE Freddie Mac called the Uniform Mortgage Data Program.
Supporters of the initiative believe the program will bring improved accuracy to loan and appraisal data and provide confidence to investors in the quality of both the mortgages and their underlying collateral.
The earliest requirements of the UMDP should have begun in the fall of 2010. But the GSEs and Veros Real Estate Solutions—the vendor supporting a crucial technological component of the program—were not ready. Critics point to the ongoing delays and confusion created by the lack of available information in their claims that the UMDP is being mismanaged. The GSEs dispute that.
The scope of the UMDP has since been reduced and a new timeline is in place for full implementation by March 2012.
And with its myriad components—each with its own respective abbreviation—lenders, appraisers and technologists find themselves in a vat of alphabet soup, trying to prepare for the UMDP.
Program Origins
The Federal Housing Finance Agency announced the UMDP in May 2010, with the goal of creating a common framework between its mortgage investor wards for the format of data from both loan and appraisal documents in the mortgage origination process.
The UMDP is comprised of four key components, which are easier to comprehend when considered in two categories—loan data initiatives and appraisal data initiatives. Each category has its two components.
While the GSEs are updating their respective loan data collection technology, an entirely new platform is needed to collect the appraisal reports. At the direction of the FHFA, both GSEs will share the Uniform Collateral Data Portal. In June 2010, Santa Ana, Calif.-based Veros was awarded the contract to build the UCDP.
According to Sue Potteiger, the former collateral risk manager at Fannie Mae and an early planner of the CDD, discussions about collecting appraisal data began in December 2008, four months after the GSEs were taken into federal conservatorship.
“Washington Mutual had just collapsed, Lehman had collapsed. The whole world felt like it was falling apart and the foreclosures were beginning to happen,” Potteiger said. “Through that process, the investors, they really didn’t know what they had secured. They knew the borrower quite well, but they didn’t know the property.”
While the GSEs weren’t collecting or analyzing electronic collateral data, other industry participants—including appraisers, appraisal companies and lenders—were transmitting the data.
“There was no reason why it shouldn’t or couldn’t be delivered to the investors as well,” she said.
More Problems Arise
While updating the MISMO dictionary of XML tags for appraisal forms, another problem came up. While the entries and data mapping for digital versions of the appraisal reports had a MISMO standard, the way individual appraisers filled them out was not consistent.
Without a consistent format for the data on the report, the consistent mapping and structure of the XML files was virtually useless.
So in addition to establishing the appraisal dataset, the GSEs had to take on another task, establishing a standard format for what appraisers could record on appraisal reports.
At least one technology executive said she warned the GSEs about these potential problems, even before the UMDP was announced.
“When they first announced CDD, they thought, 'we’ll just take the XML in and we’ll do with it whatever we want to do with it,’” Jennifer Miller said of Fannie’s early efforts. Miller is the executive vice president of products at Oklahoma City-based appraisal and mortgage technology vendor a la mode. “To get quality data in, they had to reengineer the appraisal forms.”
Miller said a la mode met with the GSEs and encouraged them to build new appraisal forms that would include all the collateral information Fannie and Freddie wanted in a format where the information could be analyzed. She said she also brought up these issues during MISMO meetings to develop XML files for the CDD.
Miller said as loan investors, Fannie Mae and Veros personnel “didn’t know what they were biting off” in trying to create appraisal form data standards. Miller believes Veros’ core business as an automated valuation model provider added to the confusion.
“I just think that Fannie and Veros, they didn’t understand how an appraisal is filled and how the lender and appraiser and AMC operate,” she said. “Veros is an AVM company; I don’t think they know a lot about appraisals. They seem the same, but they’re not.”
On the ULDD side, the GSEs were having other issues. The sheer volume of the ULDD data points was presenting more implementation challenges than originally anticipated. The GSEs decided that the ULDD had to be scaled down.
“We still intend fully to collect all of that data. But what we heard from the industry was that it was a lot all at once,” Epstein said. “We went back to the drawing board and said, 'What are the most important data elements for us to collect initially?’”
But Lloyd Booth, president and chief operations officer of Greenwood Village, Colo., origination technology firm Blueberry Systems, believes the issues with the ULDD dataset are more related to internal strife at the GSEs.
“The data is the least of the problems,” he said. “It’s their internal processes and procedures they’re working through more than the data stream.”
The FHFA said both Fannie and Freddie “independently gathered input from seller-servicers, appraisers and other market participants on the need for improved data and consistency in data definitions. This input has been used to drive the uniform standards and the deployment approach and timeline.”
But Marianne Sullivan, Fannie Mae senior vice president and single-family chief risk officer, said those discussions didn’t happen until after the FHFA announced the UMDP.
“Initially when Fannie and Freddie had the directive to work together, FHFA also requested that we work together to develop the best timeline possible,” Sullivan said. “They asked that we not involve lenders in the process and not do interviews, not find out lender impacts, but do it based on what our best knowledge was.”
“When the initial timelines for the entire project were announced at the MBA Secondary last spring, all of that was done with Fannie and Freddie and FHFA working together to think about what’s the sequence and the timeline and how to roll it out,” she added.
The delays in creating the UAD also set back the rest of the appraisal data components of the UMDP.
Most notably among those being the UCDP that Veros was contracted to build. In addition, the GSEs changed course on its implementation, further impacting the launch of the portal.
According to Veros, the UAD was not intended for the October launch of the UCDP and the company was ready for the original October launch, until the GSEs changed course.
But Sullivan offered a contrasting view. “One of the first things I remember doing under the directive was working on that standard, the UAD,” she said. “It wasn’t something that came up later. It was always something that was recognized.”
Ann Epstein, a Freddie Mac product development director working on the UMDP, said that when the GSEs and Veros planned to soft launch the UCDP in October, it would not have included “full edits” of the data compliance requirements. But after consulting with industry participants, the GSEs later changed course and delayed the launch until the full UCDP was complete.
“When we first put it out there, it was out best guess effort without significant industry participation,” she said.
Epstein added the status of the UCDP development was “not the limiting factor as to when the dates were set,” and declined to address whether Veros met its October deadline.
“It doesn’t...that’s not the issue,” Epstein said. “The issue was we reset the dates to be appropriate for the industry and then worked within those dates.”
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