"It paves the way for rep and warrant relief much earlier in the process," Christina Boyle, a senior vice president at Freddie Mac, said about the quality control technology initiative.
"It paves the way for rep and warrant relief much earlier in the process," Christina Boyle, a senior vice president at Freddie Mac, said about the quality control technology initiative.

Freddie Mac is working to integrate three existing loan review tools and is developing a fourth that assesses collateral risk to provide lenders with a comprehensive suite of quality control technology.

The Loan Advisor Suite, currently in pilot testing, is designed to help lenders avoid mortgage repurchases by verifying both loan and property data before closing, as well as automate the process of tracking when lenders are released from their representation and warranty obligations.

"It paves the way for rep and warrant relief much earlier in the process," said Christina Boyle, a senior vice president at Freddie Mac who works with lenders that sell loans to the government-sponsored enterprise.

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. And Freddie's new product suite parallels many features included in a suite of technology that Fannie began providing lenders in April.

For example, the new Collateral Advisor software that Freddie is developing uses appraisal data submitted to the GSEs' Uniform Collateral Data Portal to identify and address collateral valuation risks before a loan closes. Fannie Mae has a similar technology, called Collateral Underwriter, that lenders began using in January.

Other existing components being integrated into the Loan Advisor Suite include Loan Prospector, Freddie's automated underwriting system, and Loan Quality Advisor, which uses the Uniform Loan Delivery Dataset file that lenders submit to Freddie Mac to validate loan-level borrower information for potential flaws. These are similar to Fannie Mae's Desktop Underwriter AUS, and its EarlyCheck loan data validation tool.

The last product in Freddie's suite is called Loan Coverage Advisor. It automates the once largely manual process of calculating and tracking the selling representation and warranty relief date for individual loans. Fannie also provides lenders with monthly "Reps and Warrants Tracking Reports," which were updated in August to include additional details.

The Freddie Mac initiative is the latest move in an ongoing back-and-forth between the two GSEs to match each other's technology capabilities. In May, Freddie announced it would stop charging lenders to use its AUS, prompting Fannie Mae to follow suit one month later.

"Some people said that was to get more market share. We would love that, but the gist was really to make sure lenders had access to the technology," said Boyle. "We did not want any nominal fee to get in the way. That was sort of a precursor to making this suite available to seller-servicers without cost."

The Federal Housing Finance Agency, which regulates both GSEs, has mandated much of Fannie and Freddie's efforts to enhance their loan quality review functions in response to lender concerns that secondary market liability has been difficult to define and manage.

When the Loan Advisor Suite is released for broad use in 2016, lenders won't be required to use the technology and those that do won't have to pay for it. Roughly a dozen Freddie Mac sellers have been testing the GSE's new technology. These include some top-10 seller-servicers, nondepository lenders, and a number of midsize regional and small community banks, Boyle said. Freddie also has consulted with some vendors on the project, but Boyle declined to identify specific participants.

Lenders will be able to use any of the four tools on a standalone basis and also have the option to use multiple products without adopting the entire suite.

"Lenders can adopt it whenever and wherever they want to if they want to get a view of the loan and actionable feedback that they can fix before they close," said Boyle.

During testing, company size hasn't influenced lenders' preference to use the tools individually or as an integrated suite, Boyle said. Some large players utilize proprietary AUS technology, but that hasn't made them any less likely to use Freddie's systems because they still need a buyer's view of the data, she added.

But lenders have had to balance their available operational resources with other priorities to determine whether it makes sense to dedicate resources to getting the integrated option up and running.

"I think it's based on a natural prioritization that occurs depending on their capacity," said Andrew Higginbotham, a Freddie Mac senior vice president who's working on the IT architecture for the Loan Advisor Suite.

Integrations with Freddie Mac and Fannie Mae's automated checks can be readily implemented, given the widespread use of the ULDD, said Mike Vitali, senior vice president and chief compliance officer at quality control and due diligence technology vendor LoanLogics. (Vitali wasn't involved in the development of the Freddie Mac tools.)

"You basically have all the data points in the right places when you deliver a loan to Fannie or Freddie," he said. "Everything's uniform. It's extracted out of everybody's systems. Today, most of your LOS systems and your appraisal systems have been written to ULDD."

And GSE tools don't rule out the need for lenders to do their own checks on the quality of their loan origination system data, Vitali added.

"Companies can look and see if LOS data is in the right place [with the GSE tools], but the lender should have their own automated preclosing reviews to be sure that the data that is in all those places is accurate," he said.

Higginbotham agreed, and said Freddie's loan quality tools are not intended to replace lenders' own origination technology.

Freddie plans to stage a demonstration of the product and how it works with existing systems at the Mortgage Bankers Association's Annual Convention in San Diego.

Subscribe Now

Authoritative analysis and perspective for every segment of the mortgage industry

30-Day Free Trial

Authoritative analysis and perspective for every segment of the mortgage industry