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Appraisal changes, borrower verification helps make mortgages safer

A Fitch Ratings report shows the US mortgage underwriting process has been made safer and stronger for borrowers and lenders. This comes after Fannie Mae and Freddie Mac adopted new data management and verification methods in recent years, a move that improves the GSEs’ ability to assess credit risk while reducing costs for borrowers and sellers.

The Fitch report mentions the Uniform Collateral Data Portal (UCDP), part of Fannie Mae and Freddie Mac’s push to standardize data collection in the appraisal and lending environment.

The Fitch report states, “The information is aggregated and tracked in a rapidly growing database that currently includes more than 20 million appraisals, an unprecedented amount of property valuation detail.”

Highlights from the report:

• The appraisal data allows GSEs to assess valuations on new loans with greater confidence by referencing details of nearby properties or a prior appraisal of the borrower’s property.
• In some cases, such as in Fannie Mae’s Day 1 Certainty Program, GSEs can grant warranty relief to lenders
• In some cases, the appraisal data enables GSEs to waive the need for a new appraisal
• Another feature of the program is direct verification of borrower’s income, employment and assets

Fitch writes. “Lenders and borrowers benefit through shorter processing times and less required paperwork, as well as representation and warranty relief for lenders.”

Although Freddie Mac has not implemented third-party direct verification of income and assets, it has plans to do so soon.

“Fitch views the representation and warranty relief as only adding modest risk to investors due to the limited circumstances in which it is provided. Additionally, for Fannie Mae risk-sharing transactions, the relief provided to sellers does not add any risk to investors as Fannie Mae will repurchase loans subsequently identified as having an underwriting defect, even if the original lender is not obligated to repurchase the loan from Fannie Mae,” Fitch concludes.

Sources:

Fitch Ratings. Fitch: New GSE Tools Will Improve US Mortgage Underwriting

HousingWire. Fitch: New tools from Fannie Mae, Freddie Mac will make mortgages safer