Fannie Mae, Freddie Mac gear up for change involving g-fee

Fannie Mae and Freddie Mac are taking a new approach to some guarantee-fee changes in coordination with their regulator.

Under the change announced at the Mortgage Bankers Association's annual meeting in Denver, lenders selling loans into the mortgage-backed securities swap channel will get advance notice of certain pricing changes.

The new policy aims to account for the time it takes to originate a loan for sale into the secondary market, so that a pricing update by either of the two government-sponsored enterprises doesn't hurt the economics of loans in process at the time it comes out.

Executives at both GSEs weighed in on the change during a panel and in conversations followed the Federal Housing Finance Agency's announcement about it on Monday.

"What we've heard for a long time is it takes 60-plus days to originate a mortgage and you wanted pipeline protection," Freddie Mac President Mike Hutchins told attendees at the event. 

"We've had an internal policy for quite a while to give you 60 days notice before we had significant price increases. So we were very supportive."

The change specifically requires that amount of notice be provided for base g-fees greater than a basis point, said Malloy Evans, Fannie Mae's executive vice president and head of single-family, in an interview.

"This new practice will provide lenders more certainty when pricing loans, while still allowing the enterprises to respond rapidly to evolving market conditions," said Naa Awaa Tagoe, deputy director of the Federal Housing Finance Agency, during the earlier panel.

Bob Broeksmit, the association's president and CEO, welcomed the move.

"We have long called for increased pricing transparency and believe more conversations are needed to better balance who bears the risks of pricing volatility between the primary market and the GSEs," he said in a statement.

In addition to announcing the new g-fee directive, both GSEs said during the conference that they will be moving forward with broader appraisal waiver criteria that their regulator has greenlighted.

Initiatives GSE leaders said they're currently working on include a further build-out of technologies aimed at digitally verifying information loan applicants submit, said Priscilla Almodovar, Fannie Mae's president and CEO.

Use of this automation has contributed to a reduction in the repurchase risk at Fannie, according to Almodovar.

"If you use one or more tools, we're seeing your potential defect risk go down 33%. If you use multiple tools, we're seeing your defect rate go down by 75%," she said.

Automated tools Fannie has added recently include single-source validation in which 12 months of borrowers' asset data can simultaneously be used to verify income and employment, and a free self-employed income calculator. 

"We've had this steady drum beat of leveraging data and technology to give us better risk management capabilities, the ability to improve access to credit and the ability to deliver certainty to lenders from a rep and warrant perspective," Evans said.

Fannie also has been advancing its rental payment reporting and underwriting, which can help so-called credit invisible borrowers who lack traditional measures of payment histories.

"I think both of us have seen great promise of people who have no score now have a score," said Almodovar, while speaking with Hutchins on a GSE leaders panel.

Freddie Mac also has been developing a set of tools for data validation and nontraditional underwriting, and additionally has a fee-based repurchase alternative pilot that FHFA has allowed the enterprise to  extend to the full market.

Freddie's second-lien pilot also is moving forward.

"It's a very important product. It's a pilot. It's a very small pilot in the scheme of things but nonetheless, we're still disturbed by all those individuals that think it's in their best interest to take a cash-out refinance on 3% mortgage," Hutchins said.

Also at the conference, Freddie Mac's head of client engagement, Kevin Kauffman, was spreading the word about a recently added messaging capability for Loan Product Advisor.

Known as LPA Choice, the new function provides more information than previous decisioning on loans submitted to Freddie, so that lenders get feedback if there are shortcomings in any of three areas: income, assets and loan amount.

"Those are the three areas that we focused on to get a product to market quickly," he said, noting that there are more on track.

"There were a lot of different data factors that we could look at that we can talk about eligibility, but we wanted to start by getting something that was tangible in the hands of lenders, that could make a difference for consumers," he said.

Freddie develops technology based on feedback from a representative cross-section of mortgage professionals, and welcomes inquiries about participation. It requires those chosen for the group to commit to it and provide active participation in discussions about concepts.