Loan data collection standards and the processing of appraisals and loan application data have been streamlined in a joint effort by the government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae. These new procedures require lenders selling a loan to the GSEs to follow uniform and more in-depth guidelines for collecting information regarding:

• loan characteristics;
• borrower information;
• property securing the loan; and
• identity of the loan originators.

Changes to loan application data will be included in the Mortgage Industry Standards Maintenance Organization (MISMO) file format, the industry standard for loan delivery to the GSEs, in June of 2010, and will be required September 1, 2011.

Additionally, the GSEs have created a common platform for the electronic transmission of appraisals, which will be available in October of 2010. Minimal changes to appraisal forms will focus on better instructions for form completion and will go into effect  January 1, 2011. Loans with application dates of January 1, 2011 or later and delivered on April 1, 2011 or later will be required to be submitted electronically.

first tuesday take: The GSEs also recently released a new complaint process for the Home Valuation Code of Conduct (HVCC). [For more information on the new HVCC complaint process, see the May 2010 first tuesday article, Freddie and Fannie to implement new complaint process.]

The HVCC complaint process and the streamlined data collection processes serve the same purpose: greater transparency and accountability for the lenders and the GSEs in an effort to avoid a repeat of the mortgage meltdown which led to the Great Recession — a laudable goal.

However, the Federal Housing Finance Agency (FHFA), the management entity in charge of the GSEs, has not released details on the “more complete” data collection requirements, nor are they, when released, likely to include the kind of stringency that provides the greatest protection for the real estate market:  the fundamental requirement of having a 20% down payment on a 30-year fixed rate mortgage (FRM).

Although the GSEs are traditionally conservative in their downpayment requirements , they do provide options for adjustable rate mortgages (ARMs) and even for down payments below the traditionally safe 20%. The federally-mandated goal of a high national rate of homeownership is at odds with managing risk in the real estate market. Until that goal can be tempered by the risk reduction requirements of the new real estate paradigm, the efforts of the GSEs will make little difference. [For more information on the new real estate paradigm shift, see the May 2010 first tuesday article, Looking through the window towards recovery: a real estate paradigm shift — Part I.]

Re: “Fannie Mae and Freddie Mac Launch Joint Effort to Improve Loan and Appraisal Data Collection” from the Federal Housing Finance Agency

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Tagged as: Fannie Mae, Freddie Mac