Whenever a new innovation hits the scene, the temptation is to focus all attention on the advancement, as if it appeared out of thin air. In truth, everything Freddie Mac delivers for the benefit of the industry and the borrowers we all serve is part of a larger journey.
LPA Choice℠, the latest advancement in Loan Product Advisor® (LPA℠), offers unprecedented transparency into our purchase eligibility requirements, helping lenders originate with confidence that they're not missing opportunities. With the new, actionable information we'll provide in these messages, lenders can make faster, more informed loan decisions and choose to resubmit Caution loans to meet Freddie Mac's established underwriting guidelines.
Winning lenders more business is just one benefit that springs from this new innovation. We'll tell you more in this article.
But first, a look back to see how we arrived at this powerful new feature.
Freddie Mac's Journey of Innovation
So much of the work we do is designed to make it easier and more affordable for lenders to help borrowers achieve their goals. A fantastic example is automated collateral evaluation (ACE), which uses data and analytics to allow lenders to originate certain loans without an appraisal. This feature has helped borrowers save money and allowed lenders to close loans faster and more efficiently. Faster turnaround times can be crucial in a competitive housing market, and taking advantage of ACE can help borrowers get to homeownership more quickly. At the same time, it has helped solve for the contactless challenges presented by the COVID-19 pandemic and alleviated appraiser capacity concerns during high volume periods.
Another important step on that journey has been in the affordable space, helping lenders reach more underserved borrowers in what has become one of the most difficult housing markets consumers have seen in a generation.
As a result, we've seen loan originators embracing new ways of working with homeowners and new ways to think about meeting their needs. After years of relatively simple refinance business, lenders have risen to the occasion.
Through this, we have worked closely with them, learning about their needs. This collaboration with lenders has helped ensure that the enhancements we make to LPA deliver solutions lenders need to help them find every opportunity to serve more borrowers.
Helping borrowers with nontraditional credit files through rent payment history is one example. Another is our down payment assistant tool, DPA One®, which helps lenders easily connect their borrowers with available payment assistance.
LPA Choice is the next step in this journey.
Better Guidance for Better Lender and Borrower Outcomes
Lenders have told us that more transparency into the mortgage products we provide and into our purchase eligibility requirements can help them serve more borrowers in less time. They've told us that many times when a loan originator submits a loan to LPA and receives a Caution risk class, they're unsure of how to proceed and might consider it a hard stop. LPA Choice provides tailored information and actionable feedback that can turn those Cautions into opportunity for loan originators and their borrowers.
To that end, LPA Choice will add three new feedback messages designed to help lenders make informed decisions about how to resubmit a Caution loan in a manner that could meet Freddie Mac's purchase eligibility requirements. These messages feature dynamic numbers tailored to the specific information inputted for the loan.
LPA Choice identifies a subset of Caution loans that are closest to an Accept and then delivers these feedback messages to the lender. To accomplish this, the technology will look at three areas:
Debt-to-Income (DTI) Ratio
Sometimes a relatively small increase in income can turn the tables. This message will remind lenders to report all borrower income.
For example, a loan originator may receive a Caution message stating that $460 of additional qualifying income may help get to an Accept. Whereas before, they would not have any indication as to whether $100 or $1000 of additional qualifying income would be needed to potentially get to an Accept.
Loan-to-Value (LTV) Ratio
This message alerts the lender to the possibility of increasing the down payment on a purchase money loan.
Reserves
Lenders tell us that loan originators typically do not ask for all of a borrower's assets. This message serves as a good reminder when it will make a difference.
These small changes in offering tailored information have a big impact on loan originators. For example, they'll know when to check for additional income sources for the borrower, or to see if there are additional reserves the borrower can tap into.
The Benefits LPA Choice Delivers to the Industry
Like all of the solutions provided by Freddie Mac, our efforts with LPA Choice are part of a bigger effort to help lenders help more borrowers – and to do it more efficiently.
When lenders have the right information, they can decide how and when to use it to enhance their process and uncover the most opportunity. With a business intelligence tool like ECO®, we provide lender dashboards that help them see missed opportunities to offer their borrowers Home Possible® loans or take advantage of ACE, rent payment history or borrower cash flow assessment.
LPA Choice is another example of delivering efficient solutions. At its core, LPA Choice is about helping lenders uncover missed opportunities that are tailored to the loan applications they're submitting to LPA. The tailored messaging helps loan originators more quickly identify potential paths to Accept for efficiency. This takes both time and cost out of the loan origination process, but that's just the first of the benefits.
LPA Choice also provides additional opportunities for qualified borrowers to obtain a mortgage and achieve their dreams of homeownership. This is the path to a stable financial future for more Americans. The lender still gets to decide how they choose to work with their borrowers, but now they have more options and some clear guidance.
Taking advantage of the opportunity LPA Choice offers will require lenders to look at LPA feedback differently. Just because a loan receives a Caution, it does not mean that an Accept isn't feasible.
The new functionality was launched on October 14, 2024. The new messages will only appear on Caution loans where there is a reasonable chance of meeting Freddie Mac's established underwriting guidelines.
At Freddie Mac, we consider this to be the next step on the journey to a fully digital lending future. When lenders include these new messages in their origination technology and embed them into their loan origination process, overall lender performance will improve by helping every loan originator make faster and more informed decisions on how to proceed.
This is just the beginning – 2025 will bring more enhancements to LPA as we continue to listen to lenders and help them make home possible for more borrowers.
More information on LPA Choice is available
