The first technologies created in response to Fannie Mae’s Loan Quality Initiative are coming to the market, giving lenders the ability to access new services conveniently through loan origination systems.
In September, Fannie released EarlyCheck, one of the first LQI initiatives. It lets lenders run documents through Fannie Mae’s data verification platform before the loan closes.
The service is available for free to approved Fannie Mae sellers that use Desktop Underwriter, Fannie’s automated underwriting platform that reviews and approves eligible lender-submitted loan documents.
Fannie provides a Web-based interface for lenders to connect to EarlyCheck. Users upload documents to the browser-based service and run the check process. But since the EarlyCheck announcement, LOS developers began building what developers call “service-based integrations” to EarlyCheck—creating a direct connection to the service within the LOS environment, eliminating the extra steps of exporting loan docs and logging onto Fannie’s Web interface.
Avista Solutions is among the first developers to add a service-based integration to EarlyCheck within its Avista Agile LOS. Mark Phlieger, CEO of Charleston, S.C.-based Avista, compared service-based integrations to smartphone apps. If Avista Agile is the iPhone operating system, the integration is Urbanspoon—directly connecting to Web content via a specialized interface rather than a Web browser.
EarlyCheck can be used throughout the origination process, ensuring that data remains consistent and accurate. Avista recommends its clients run checks at underwriting and again before the final docs are pulled.
“By having this validation, any problem that we can push to the front of the process can be fixed before the money’s left the office,” Phlieger said. “Knowing those data checks are correct upfront is going to improve loan quality.”
Fannie and Freddie Mac are both stepping up efforts to require lenders to buy back mortgages that did not meet initial underwriting and eligibility standards. A Fitch Ratings report estimates that through the first half of 2010, the “Big Four Banks”—Bank of America, Citi, JPMorgan Chase and Wells Fargo—received repurchase requests totaling $19.1 billion. The report adds that in the worst-case scenario, the Big Four could be on the hook for up to $180 billion in buybacks.
Those banks collectively service approximately 50% of the GSE portfolio and $10.7 billion of the 1H10 buybacks were the result of GSE requests. The August report estimated the value of Fannie and Freddie’s combined delinquent mortgages and real estate-owned at $354.5 billion. The report projects the GSEs could successfully require the Big Four to repurchase 25% to 50% of that pool, at a value of $17 billion to $42 billion.
“To put these figures in perspective, these institutions had annualized preprovision net revenues and net income of $164 billion and $54 billion, respectively, in aggregate and $391 billion of tangible common equity,” the report said.
Ellie Mae chief strategy officer Jonathan Corr said the Pleasanton, Calif.-based developer is building an integration for its Encompass360 LOS, adding that it also uses interfaces for compliance and fraud services.
“It really pushes us more and more toward using technology that will ultimately get us to the place where the rest of the market players have comfort and confidence that the information is there and valid,” Corr said.
