TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/831918
22 | TH E M R EP O RT U MDP ® , UAD, UCDP ® , URLA, UCD … the mortgage industry often refers to these acronyms as "alphabet soup." Though the jargon may be somewhat confusing, the alphabet soup represents industry- wide efforts to create uniform data standards. While the work to adopt them has been a pain point for lenders over the past few years, these efforts reflect a long-overdue investment in data quality and ef - ficiency. Now, we are beginning to see the return on that investment. Data standardization and uniformity, combined with the power of Fannie Mae's big data and advanced analytics, is helping lenders achieve Day 1 Certainty™—freedom from representations and warranties on key loan components, plus more speed and simplicity. Mortgage borrowers benefit, too, with an easier digital experience that aligns with how they conduct other business transactions. Something Simmering T he mortgage industry's digital journey began more than two decades ago. In 1995, Fannie Mae took some of the first steps on that journey when it introduced Desktop Underwriter ® (DU ® ). It was the first automated mortgage loan underwriting system, and it came on a set of seven floppy disks that Fannie Mae employees delivered to lenders. Training was part of the service. Around that same time, the internet began to catch on and become broadly available, and the mortgage industry saw the possibilities for increased speed and efficiency. But it also soon recognized the need for some kind of industry standards for the electronic exchange of information, and MISMO was born. MISMO— the Mortgage Industry Standards Maintenance Organization—de - veloped "a common language for exchanging information for the mortgage finance industry," accord- ing to the MISMO website. It was the original entry in the "alphabet soup" of mortgage data standards. But in the early 2000s, mortgage lending went crazy. The indus - try was living in the moment, with little focus on the future. Then the bubble burst. Once the industry caught its breath, data standards again became a priority. There was renewed interest in loan quality, and the post-crisis regulatory climate tended to drive up costs, fueling a quest for ef - ficiency and willingness to invest in it. The industry could not continue to meet quality require- ments and embrace changing consumer expectations without end-to-end digitization of the mortgage life cycle. Enter UMDP ® . The Uniform Mortgage Data Program® was developed by Fannie Mae and Freddie Mac in collaboration with their regulator, the Federal Housing Finance Agency. Introduced in 2010, it triggered the new wave of data standardization, which in turn opened up a world of opportunities for the industry. Consider appraisals. Less than a decade ago, residential appraisal reports were not even digitized, and there were no standard formats even for simple things like dates. Property condition was described in wildly nonstandard free-form terms such as "Average New," "Average Old," and "Typical." The number of bathrooms in a property might be listed as 1.5 or 1.1, both meaning one full and one half bath. And the appraisal reports in loan files? Often they were handwritten, and not necessarily legible. One of the first UMDP outputs was the Uniform Appraisal Dataset (UAD). It standardized appraisal data, and since 2012 Fannie Mae has required digitized appraisal reports. Refining the Recipe W ith the foundation of standardized appraisal data, Fannie Mae developed Collateral Underwriter ® (CU™). Pairing advanced analytics with a database of more than 23 million appraisals and growing, CU is a powerful appraisal risk assessment tool that Fannie provides free to its lenders. Now, as the GSE announced late in 2016, there is even more. Leveraging the appraisal database assembled in the past five years, CU enables Day 1 Certainty in two ways: • Lenders receive freedom from representations and warranties on the appraised property value on eligible loans with a CU risk score of 2.5 or lower—about 60 percent of all appraisals submitted to Fannie Mae. • Property Inspection Waivers provide offers to waive an appraisal on about 20 percent of limited cash-out refinances. Lenders get freedom from representations and warranties on property value, condition, and marketability; borrowers can save the cost of an appraisal; and a shorter origination process benefits everyone. A Spoonful of . . . Clarity As the mortgage industry attempted to digest the cumbersome alphabet soup of data standards and regulation, Fannie Mae innovated to deliver a recipe for certainty. By Andrew Bon Salle FEATURE