Pulte wants Freddie AU savings passed on to consumers

Freddie Mac wants lenders to pass on the cost savings to consumers from its latest enhancements to its Loan Product Advisor automated underwriting system.

The company greenlighted what was described as an on-hold innovation to the system. The upgrades include the launch of a new feature, Freddie Mac Income Calculator. It is designed to help homebuyers in the gig economy by "more accurately and efficiently" calculating wage earner and self-employed income, a press release said.

Freddie plans to add in features to factor in income from pensions, social security and rental properties.

Who should benefit from the savings?

"After the last four years of astronomical inflation, it is important that we lower costs any way we can, and we encourage lenders to use this technology to pass savings onto customers, effective immediately," said Bill Pulte, Federal Housing Finance Agency director and chairman of both Freddie Mac and its competitor, Fannie Mae.

The Community Home Lenders of America is supportive of Pulte's comments, pointing to its past statements regarding junk fees in the mortgage process.

"CHLA is thrilled that Freddie Mac is making enhancements to LPA designed to reduce mortgage closing costs through technology innovations — and that FHFA Director Pulte is prioritizing such actions to reduce closing costs to consumers," a statement from Scott Olson, its executive director, said. "This has been a top CHLA priority in recent years, and we believe more can be done to address runaway FICO credit score costs, vendor access fees, and employment verification costs."

What other changes did Freddie Mac make?

Other enhancements to LPA include early insights on automated collateral evaluation, which Freddie Mac said has saved borrowers more than $2 billion in appraisal costs since 2017.

Lenders will also be getting actionable LPA Choice feedback messages; this so far has enabled originators to qualify an additional 18,000 borrowers, according to Freddie Mac. 

Given where industry margins are, however, do some mortgage originators have the bandwidth to pass savings on to consumers? 

Adding to the problem is borrowers' notorious reluctance to comparison shop for lower rates and fees among originators, even with the Loan Estimate form provided under the TILA/RESPA Integrated Disclosures. This was confirmed in a 2024 LendingTree survey, as well as 2022 studies from Fannie Mae and Zillow.

Mortgage lenders still operating on tight margins

During 2024, independent mortgage bankers made $443 on every loan produced, inclusive of fee income, net secondary market gains and warehouse line spread, the Mortgage Bankers Association said. This comprised $11,520 of revenue minus $11,076 of expenses. The latter included commissions, compensation, occupancy and equipment costs, among other things.

The 2024 profits followed two years where IMBs lost money on every loan originated — $1,056 in 2023 and $301 in 2022.

But in the first quarter, IMBs posted a net loss of $28 per loan originated, an improvement from the fourth quarter's $40 loss.

Between origination and servicing, 58% of the companies in the study were profitable in the first quarter. Those which had less than $100 million in total volume had an average loss of over $1,000 per loan, while those whose average loan size was under $250,000 lost more than $1,300 per loan.

How much money can lenders save?

In its press release, Freddie Mac said by maximizing the machine learning automations in LPA, lenders are saving $1,500, have a 10% higher net margin and reduce the cycle time by five days; this is based on data from its 2024 cost to originate study.

"It's the year 2025, and the time to streamline the homebuying experience is now," said Sonu Mittal, Freddie Mac executive vice president and head of single-family acquisitions. "Under the leadership and guidance of Director Pulte, we expedited this version of LPA to increase efficiency and further lower costs."