2018 Secondary Outlook: GSE tech will help expand credit box

Fannie Mae and Freddie Mac have new technology-driven initiatives planned for 2018 that are expected to help lenders improve the borrowing experience for home buyers and make full use of the government-sponsored enterprises' credit box.

"I think the big opportunities in 2018 aren't going to be dramatic shifts in the secondary market but the continued development of strategies to bring value to the real estate industry and help them identify better ways to finance homes, communicate better with consumers and drive down costs," said Matt Clarke, chief financial officer and chief operations officer of Churchill Mortgage.

But the jury's still out on to what extent technology initiatives Fannie and Freddie have planned for next year will reduce costs for lenders.

For example, Fannie's rollout of its Day 1 Certainty single-source data validation pilot to the broader market next year could help, but only if borrowers opt to allow bank verifications of data.

"There will be some borrowers that don't want to go that route and some that do," confirmed Bill Banfield, executive vice president of capital markets at Quicken Loans, a company that has been testing single-source validations with Fannie. The process is simple and offers efficiencies for a lender as well as a borrower, he said.

Bank account information will increasingly be used to validate borrower data for both nonagency and agency loans next year.

And lenders expect nonagency loan purchases to grow a little in 2018 even with Fannie Mae and Freddie Mac taking steps to widen their credit boxes.

Angel Oak Mortgage Solutions, one of the companies that has been active in the private secondary market for nonagency products, is "starting to see more competition crop up," said Sean Marr, director of correspondent lending.

Nonagency underwriting could open up a little in the coming year as a result, but Angel Oak anticipates continuing to approach the market only as a niche and to avoid going too far, Marr said.

"Not everybody needs our programs and they are designed to perform," said Marr. "We're not out there offering yesteryear's subprime and we hope nobody goes too far and takes a dangerous approach again."

Meanwhile, Fannie plans to broaden parameters for purchasing construction and manufactured loans, which could help lenders struggling with declining volumes in the coming year.

"I think that the products that we see tend to be shifting to being slightly more liberal than they have been in the past couple of years," said Clarke.

More support for construction loans in particular "could be a huge benefit because there just aren't enough outlets for that," he said.

Experimentation with expanded purchases of manufactured housing product also could help lenders, as long as those homes are sound structures that sit on a permanent foundation, he said.

"Those are good and well-built homes for the most part, and they should be treated like a normal home for lending purposes," Clarke said. "There are some pockets of the country where manufactured housing is very, very popular."