FHA Sets Path for Appraisal Delivery, Then E-Mortgages

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Ongoing efforts to modernize many of the Federal Housing Administration’s critical technology platforms will pave the way for additional initiatives that will emphasize increasing automation, reducing paperwork and better managing the risks related to its loan insurance operations—while also creating a path toward electronic mortgage originations and appraisal file requirements for FHA-backed loans.

According to Brenda Boldridge, a program support officer at the FHA, current efforts include implementing new data submission standards that adhere to the Mortgage Industry Standards Maintenance Organization’s Version 3.x reference model and developing an electronic version of the case binders that lenders submit to the FHA as part of the loan endorsement process.

Speaking at a panel during the Mortgage Bankers Association’s annual technology conference in Hollywood, Fla., on Monday, Boldridge added that the FHA intends to begin collecting electronic appraisal reports and has proposed implementing the electronic signature and closing processes necessary for an FHA e-mortgage platform.

Noting that the Computerized Home Underwriting Management System (the FHA’s insurance endorsement system of record) is more than 30 years old, Boldridge said the enhancements are a long time coming.

“We need the industry to embrace the changes that are coming,” she said. “You're going to see more changes in the next two to three years than what you've seen in the past 10.”

The FHA has already migrated the CHUMS platform to a new Oracle database management system. In addition, its automated underwriting system, called the Technology Open to Approved Lenders, or TOTAL, Scorecard, will also migrate to the Oracle platform. Boldridge said the FHA’s first use of the MISMO data standards will be implemented to update the format of data submitted to the TOTAL Scorecard.

Later, the MISMO standards will be implemented in the data format for the 1003 mortgage application form, an effort expected to take place during the third and fourth quarters of the FHA’s fiscal year 2013. Also during this time, the FHA will develop new policies around its electronic case binder, which it plans to implement during the 2014 fiscal year.

Another modernization effort was the development of the FHA’s Lender Electronic Assessment Portal. Launched in February 2012, LEAP is an automated, Web-based tool for lenders to submit applications to become approved FHA lenders and has automated the lender approval process and reduced paper applications.

“It was the first reduction in paper that we had really accomplished in some time,” Boldridge said. “We expect to do more of that, but that was a huge effort.”

The modernization efforts come as the FHA has seen both the volume or insurance issued and default rates skyrocket. Since 2008, unpaid principal balance of FHA-backed loans has increased 150% from $400 billion in 2008 to $1.1 trillion in 2013, representing a default rate of 9.5% of total insurance-in-force.

Implementing new risk analytics tools will help better manage those challenges. During her presentation, Boldridge did not provide a timeframe for when the FHA would begin collecting appraisals, but the concept was first revealed in the 2012 scorecard that the Federal Housing Finance Agency developed to benchmark Fannie Mae’s and Freddie Mac’s performance. Both the 2012 and 2013 versions of the GSE scorecard tie executive compensation to a number of efforts, including the ongoing Uniform Mortgage Data Program, which included new appraisal delivery requirements for Fannie and Freddie.

The FHA currently supports limited e-signature acceptance and does not permit lenders to originate loans with fully paperless e-notes. Previous efforts to expand its e-signature acceptance have stalled, leaving a wide discrepancy between the technological capabilities of the FHA and GSEs—even as other government entities have embraced e-signatures, like the Internal Revenue Service’s adoption of e-sign for its 4506-T Request for Transcript of Tax Return.

The e-sign and e-closing enhancements would enable the FHA to begin insuring e-mortgages, but won’t go into development at least until the 2015 fiscal year and have not yet been included in the FHA’s budget.

“We have a roadmap, we know where we're going, but we just need to ensure that we get funding from our great congressmen and woman because we can't continue with the outdated systems that we're currently using,” Boldridge said.

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