Fannie and Freddie Adding Automated Validation to Flagship AUS Systems

Fannie and Freddie Adding Automated Validation to Flagship AUS Systems

GSE’s integrating income and asset validation to help reduce origination costs

The mortgage industry was set abuzz on Monday when the GSEs Fannie Mae and Freddie Mac both announced sweeping changes to their automated underwriting systems, including an automated appraisal valuation tool. Somewhat of an undercard to the appraisal news was the news that Fannie and Freddie are both integrating automated validation of borrower income, asset, and employment into their systems.

Why should you care about automated validation

There are a number of incentives for loan officer’s and lenders to utilize these automated validation tools when they are originating loans. Borrowers, lenders, underwriters and the GSEs themselves will all experience new efficiencies that will speed up the loan cycle and lower origination costs.

For borrowers, this means that in some situations they will not be required to provide their own copies of bank statements, tax records, and paystubs. This alone will be a tremendous relief for time-strapped borrowers. Furthermore, borrowers will be delighted that the streamlined process could potentially allow them to close on their loan faster.

For loan officer’s, they will benefit from the same process efficiencies as borrowers, but with different meaning. Fewer documentation fires to put out means less headaches and resources being devoted to chasing down the elusive last page of bank statements (amongst other things), which will allow the information on the loan application to be verified much earlier in the process. A shorter loan cycle will save money on costs, make referral sources happy, make borrowers happy, and allow personnel and resources to be devoted to new loans.

As part of Fannie Mae’s “Day 1 Certainty” program, lenders that utilize the Desktop Underwriter and Collateral Underwriter tools for income, asset, and employment validations will receive protection from buyback risk under certain conditions.

Why do the GSE’s care about these tools?

For the GSE’s it all comes down to mitigating risk, and empowering lenders to conduct business with confidence. Fannie and Freddie are both embracing a big shift in the mortgage industry towards more direct-source validation empowered by technology.

These direct-data integrations will effectively remove the human element of income, asset, and employment validation. Not only does this improve loan quality, but it also helps to eliminate any potential for bias in these processes, a big win for an industry under intense scrutiny.

Fannie Mae has already activated the automated validation of income tool in their Desktop Underwriter, and expect the automated validation of assets and employment to be live in December. Freddie Mac plans for all three automated validation tools to be live and available within their Loan Advisor Suite by spring 2017.