Fannie to Offer 'Day 1' Rep & Warranty Relief
Fannie Mae is preparing to offer immediate representation and warranty relief to lenders that use its suite of automated quality-assurance technology.
The benefit will be unveiled as part of a marketing campaign dubbed "Day 1 Certainty." That name will serve as an umbrella brand for a variety of Fannie Mae tools, including Desktop Underwriter, Collateral Underwriter and EarlyCheck, according to sources familiar with the initiative.
The government-sponsored enterprise filed applications to register the service marks "Day 1 Certainty" and "Day One Certainty" with the U.S. Patent and Trademark Office in July. The filings describe "desktop computer software in the field of mortgages, namely, for use in providing a waiver or an end to a representation or warranty obligation in an electronic mortgage loan system."
In addition, the website domains Day1Certainty.com and DayOneCertainty.com were registered this month by advertising agency Bloomfield Knoble. The Dallas firm's previous work for Fannie Mae includes KnowYourOptions.com, a website for distressed borrowers; the Home by Fannie Mae mobile app; and the redesign and rebranding of HomePath.com, Fannie's real estate owned property sales website.
The circumstances under which representation and warranty waivers will be granted are not completely clear. Some aspects of the loan file that lenders currently warranty may be eligible for immediate waivers, while others may not.
The Federal Housing Finance Agency is said to have approved the plan only this week, and an official announcement is expected next week during the Mortgage Bankers Association's Annual Convention in Boston. Representatives from Fannie Mae and the FHFA declined requests for comment.
The plan would go a long way toward alleviating concerns about repurchase risk and encourage lenders to remove self-imposed overlays to the GSEs' credit standards that limit consumers' access to mortgages.
To be sure, repurchase requests at Fannie and Freddie Mac have dropped significantly since they peaked in 2012, as delinquencies rates have decreased and the GSEs implemented new policies to limit lenders' liabilities.
For example, the GSEs created a "representation and warranty framework" that took effect in 2013, which lets lenders off the hook for repurchases three years after eligible loans are acquired. That framework was amended in 2014 to clarify certain guidelines and again in 2016 to include an independent dispute resolution process. The first group of loans eligible for the rep and warrant sunset period just recently matured to the point where lenders can take advantage of it.
Yet Fannie may have felt like more reassurances were needed to encourage mortgage lenders not to be overly cautious in credit decisions.
Lenders can obtain insurance for repurchases on the private market, and coverage is typically contingent on all of a lender's loans undergoing quality reviews, said Justin Vedder, executive vice president at CastleLine Risk and Insurance Services. While not familiar with the Fannie's plans, Vedder speculated that it would be difficult to provide blanket coverage in return for use of quality control tools.
"It's difficult to assess a file quickly," said Vedder. "There are some things in the origination process that are black and white, but some things are gray."
Over the past few years, Fannie and Freddie Mac have been updating existing technologies and integrating them with new tools for lenders to validate loan data and eligibility prior to closing and sale to investors. Desktop Underwriter, Fannie's automated underwriting system, was made free for lenders to use and recently updated with the inclusion of trended data credit reports. Collateral Underwriter, an automated appraisal review tool, was released in 2015. EarlyCheck, a loan data validation tool, was launched in 2010.
The tools rely in part on technology and data developed through the Uniform Mortgage Data Program, a joint initiative by Fannie Mae and Freddie Mac to institute a variety of loan data and collection standards. Currently, there are UMDP datasets for appraisal and loan delivery requirements, and new datasets are in development for the closing disclosure and uniform residential loan application, commonly known as form 1003.
The technologies are free for lenders to use, but the GSEs have so far not required lenders to use them. Freddie has already organized its technology suite under the brand name "Loan Advisor Suite," and earlier this year said it is seeking to offer similar rep and warranty relief to lenders, contingent upon the FHFA's approval.
Lenders have begun using the tools in hopes they would improve the loan sales process, and they wouldn't mind getting some rep and warrant relief as well.
"We have just started using some tools but anticipate that as we work them into the loan manufacturing process we will see an efficiency lift in the underwriting flow," said Alice Carmack, executive vice president of credit risk at Bay Area lender First Cal. "We would love for them to do more."