Good news for the mortgage lending world, we have an advocate in our marketplace who wants the same goals for our companies as we do! Who is this silent partner? It is none other than Fannie Mae! And they want to help us get more approved borrowers and reduced operations costs for our companies.
Fannie Mae has created a new program called “Fannie Mae Day One Certainty”, and this is another step moving us to the true digital mortgage age! They now allow (and prefer) new methods of getting the borrowers income and assets combined with new methods to approve value.
How does Fannie May Day One Certainty work?
The short story is Fannie Mae has created instant rep and warranty relief by validating components of the loan file. In other words fully approving up front before lenders sell them the loans. Below are the major components of the Day One Certainty Program we will be reviewing:
Property Value Using
- Enhanced Property Inspection Waivers
- Collateral Underwriter for greater certainty
Employment Verification Using
- Employment Validation Service
Lenders Income Figures Using
- Income Validation Service
Lenders Assets for Closing & Reserves Using
- Asset Validation Service
Over the last decade, the mortgage business experienced a major crash followed up by sweeping changes in regulations. This one-two punch combination has caused the cost to originate a loan to increase dramatically. Mortgage companies are still working hard to roll back to the costs levels found in 2008-2011 and keep their rates competitive. Lenders needs to address the following major categories to succeed to bring costs down, and the best news is Fannie Mae Day One Certainty helps tremendously with both problems.
Category One – Increase Processing / Underwriting/ Closing “Per Day Rate”
The numbers that speak volumes to me as an underwriter, was when I started in 1994 in the mortgage business most shops could have their underwriters complete four to five loans per day, today most lenders report that number on average as two to three loans per day for their underwriters. This same decrease in the numbers of loans per day is found in the compliance, closing, and qualify control departments which adds up to a higher per cost loan no matter how you slice it. So, the fix here is simple BUT not easy, and that is increase your “Per Day Rate’s” per team member throughout the operations process.
Category Two – Decrease self-imposed overlays and lend to more borrowers
Risk or loan buybacks creates reluctance to borrower from banks, if you watch the headlines there are examples showing fines in the millions of dollars from agencies against medium to large lenders for “bad loans” sold to the agencies. Thus, many lenders will add overlays and restrict use of products that Fannie Mae would happily buy, which lowers the number of closed loans and profits.
One big category that comes to mind for me is borrowers who have more than four financed properties, many companies have rules not to accept them due to the perceived (or actual) losses these loans could bring. The fix here, reduce your overlays and build your knowledge on what the guidelines allow to maximize closed loans and Fannie Mae’s new tools will help.
Bottom line there is no silver bullet for all loans your company originates to avoid buy backs or scratch and dent loans. BUT with access to new technology and software your underwriting team can access in 2017, you will now be able to focus their efforts on the loans that need attention (IE loans that do not pass Fannie Mae Day 1 Waivers).
Over the next few blogs I will break down what each component of Day 1 is to help you better understand. This should help you re-direct your time and talent to the right loans to focus on, and therefore lower costs & increase profits.