Fannie Mae and Freddie Mac officials said the government-sponsored enterprises (GSEs) saved borrowers billions of dollars by ditching traditional appraisals and streamlining title requirements. Now the mortgage giants are targeting income verification and occupancy fraud to reduce closing costs and repurchase risk.
Fannie Mae, which began developing appraisal alternatives before the COVID-19 pandemic, has processed roughly 5.4 million loans using alternative valuation methods, generating a reported $3 billion in consumer savings through midyear.
“One example that I feel we’re really mature in is valuation modernization,” Jake Williamson, executive vice president and head of single-family at Fannie Mae, said during a session on Tuesday at the Mortgage Bankers Association (MBA)’s Annual Convention and Expo in Chicago.
Meanwhile, Freddie Mac said it delivered nearly $3 billion in borrower savings since 2017 through its Automated Collateral Evaluation (ACE) appraisal waivers and ACE+ Property Data Report (PDR) options.
“While we are doing those appraisal waivers, we are continuing to see that quality remains in a good place, so it’s not compromising safety and soundness,” said Sonu Mittal, executive vice president and head of single-family acquisitions at Freddie Mac.
Tackling title fees
Each of the GSEs are actively taking aim at title costs. Fannie Mae integrated attorney opinion letters (AOLs) into its selling guide and rolled out its title acceptance program, relying on internal data and analytics to waive lender title insurance requirements on eligible loans.
According to Williamson, lenders have delivered approximately 8,000 loans backed by AOLs and another 22,000 through title acceptance with zero title defects. Over the past 18 months, Fannie estimates these programs have saved borrowers roughly $25 million, or $500 to $1,500 per loan.
“Maybe one that’s not as mature is the title space and title alternatives, and we’ve been obviously working on various pilots and programs to try to reduce the cost in a responsible way,” Williamson said.
Freddie Mac’s comparable offering, known as lender title assessment, allows originators to perform title exams and curative work independently without purchasing a traditional policy or an AOL. Borrowers save an average of $600 to $650 per transaction, with savings ranging from $400 to $1,700 depending on state title rates.
“We launched it almost a year ago, and we are seeing great results on that. We’ve purchased a little bit over $3 billion in that program,” Mittal said.
Slashing repurchase risk
Beyond closing costs, the GSEs are focused on accelerating underwriting turn times and catching misrepresentation early.
Mittal pointed to Freddie Mac’s income calculator and an ongoing limited engagement that would work like an expressway for Loan Product Advisor (LPA), its automated underwriting system. Tested with select lenders over the past six months, the tool automates upfront income validation.
“What they are doing there is validating the income for the lender, and it’s showing good promise early on. We funded a little bit over 500 loans — no doubt, it’s a small number, but we are continuing to learn a good bit from it,” Mittal said. “The cycle time on those loans is almost 10 days lower, and half the underwriting touches, which one would expect on a loan that is not leveraging this capability.”
At Fannie Mae, an income calculator has logged more than 550,000 evaluations across 900 active lenders, helping drive down defect rates related to borrower earnings, Williamson said.
To combat buyback exposure, Fannie Mae launched an occupancy misrepresentation tool within Desktop Underwriter (DU) in September to flag inconsistencies before closing.
“That is supposed to capture about 20% of the defects that we observe on the back end from occupancy misrepresentation issues,” Williamson said. “When you layer those data validation services with other sort of cloud-related services, you can decrease your repurchase risk by like 80%, and so we really want to continue to lean into those tools.”
