Technology and mortgage industry veteran Robert Lux is in his second year serving as chief information officer of Freddie Mac.
In a January interview—his first, and so far, only since joining the government-sponsored enterprise—Lux spoke exclusively with Mortgage Technology about a wide range of topics. Part I of the interview
In Part II, Lux goes into detail about the Uniform Mortgage Data Program, the joint-GSE initiative mandated by Freddie Mac and Fannie Mae’s conservator, the Federal Housing Finance Agency, to update and streamline the loan and appraisal data.
Since the earliest stages of UMDP began nearly three years ago, the project has been marred by delays, setbacks and other challenges. In December, the FHFA announced it would again delay implementation of the Uniform Loan Delivery Dataset, a new file format that replaces the current proprietary 2,000-character flat files lenders submit to the GSEs via Freddie’s Selling System and Fannie’s Loan Delivery portal.
Since the interview, the GSEs have gone on to begin accepting full, electronic appraisals in the new Uniform Appraisal Dataset format via the Uniform Collateral Data Portal.
At a UMDP panel during the Mortgage Bankers Association’s technology conference in April, GSE officials said that
MT: You came into Freddie after the UMDP started. What are your thoughts about the ongoing delays in this initiative?
Lux: I read one of your articles; actually
MT: Can you explain that process?
Lux: Our waterfall of prioritization of projects has three types. Number one is mandatory. If something is mandatory, we do it. Our resources get thrown to that and we get it done. SAI, we hit every milestone, we hit every date with the Servicer Alignment Initiative.
We have a thing called RMM—Rules, Management and MISMO—which is known as UMDP to the outside world. We call it RMM because what we’re doing with UMDP is we’ve actually designing and utilizing rules engines, versus a lot of code. The Selling System has over 2 million lines of code. We want to pull a lot of that business logic out and use rules engines so our business people can update it, versus IT getting involved all the time.
For UMDP, we hit every deadline on that thing. We’ve got a customer test environment that 600 people are using right now. Though the date was delayed by the regulator, we were good. The delays, there are delays because of others involved, but we are good to go. We take mandatory projects very seriously. We hit our dates.
MT: What else is in the waterfall?
Lux: The next level in our hierarchy is our technology refresh. Our biggest job here is to maintain and preserve the asset because right now, it’s a taxpayer asset. It’s our responsibility, from a steward’s perspective, to maintain it. Technology refresh is all about making sure our systems are upgraded through our current patch levels.
The third and final in our prioritization waterfall for all our projects and for how we spend our IT money is business strategic. Only after we’ve gone through mandatory and the tech refresh do we work on anything that’s business strategic. Those two areas that we concentrate on are enhancing our servicing capabilities and enhancing our data capabilities. That’s really how we think about this world and that’s made us really successful.
MT: What have you had to do to get the Selling System updated to migrate from the old 2,000 character flat file to the new ULDD file?
Lux: We had to do a lot of performance tests on the Selling System to make sure we didn’t have any degradation of performance. We spent a lot of time on the usability of the Selling System, screen flows, making sure that the additional data we’re asking for flows well for the people who are going to have to enter the data.
We also basically added a whole rules component to this. A lot of the business logic that goes into the decisioning is now rules based. The really nice thing about that is that if we’ve got these data elements and the rules can tell you what loans we can board, the idea is, obviously, to catch problems on the onset, instead of having to catch them on the back end. So we can then pull those rules up front even further into LP. Even though you don’t get all of the data elements, you can at least tell people you’re working from a single set of rules and that rules set is holistic throughout the process. It makes it a lot easier for us, but it also makes it easier and more consistent for our customers.
MT: With the new data and going to an XML-based file, once you start requiring the ULDD file, what will you do with that information? How will it improve Freddie Mac as a business?
Lux: The whole idea is that for appraisals, in the past, we would just get appraised value. Well, how do you come up with that appraisal? From a broader, strategic level, rather than just getting a blob of an appraisal, like a PDF or a piece of paper, getting it in XML is going to allow us to streamline the process by taking out a lot of the stare and compare out of it and then utilize the data. If it’s a drive-by, then maybe we’ll use a different workflow than if it’s an appraised value.
MT: That’s how you will use the UAD appraisal file, but what about the ULDD loan file?
Lux: Just in the Selling System alone, that new file format is going to have a lot more about appraisals and information about the actual loan. The idea is to really get us from something where in the past, when we only got the highest level of information and there was also a lot of paper.
The whole idea really is to go from forms to data. Because if you’ve got forms and you’re scanning a lot of things into the system, that’s good, but the best is if you’ve got data. Data then implements automated workflow, and it allows for automated responses and near real-time decisioning, as opposed to getting a piece of paper, looking at it, and it could be wrong.
MT: What’s the status of the Selling System updates ahead of the new July ULDD deadline?
Lux: We are going to be ready for July. Without a doubt, I’m going to hit that July date; we are going to hit that July date. In our CTE, the customer testing environment, we have now trained 625 people from our customer shops on our ULDD CTE training. That means they can actually access the system, evaluate the screens and give us some feedback.
That CTE has been open since mid-December. And that is our ULDD. It’s out there. It’s available. We’re going to keep tweaking it until whenever the regulators say it’s a go in July, but it’s there, it’s ready, we’re set to go.
MT: Some LOS vendors have said that they want a direct integration into the Selling System, similar to the way vendors are building integrations into UCDP. Why doesn’t that exist?
Lux: I want to push this out there, because as far as I know, there’s no active project from our business. We’re working on a lot of mandatory stuff that we’ve been kinda asked to do by the regulators that we need to do. We weren’t asked, we were told. So a lot of these customer enhancements that would really make their lives easier, we also agree that getting that data directly system to system is ideal. It’s pretty much on our wish list too. It’s not a prioritized project right now to do it.
If we get enough feedback from our lenders and they work with our regulator to help us, we basically, if it’s something that came through as mandatory, we could absolutely do it under our waterfall. But right now, there’s just so much to do and so little time to get it done.
MT: But isn’t it just a function of opening up the Selling System to the LOS vendors? That’s what they did with UCDP, right?
Lux: We’re working on a lot of technology internally that would allow for data exchange to be a lot more bidirectional and seamless. For example, a message bus, we have something called DSI, our data services integration bus. That thing also happens in a cloud environment and went live last year. That’s a way that we’ll be able to communicate with these folks a lot easier.
Back when I was at GMAC, we had a bus called the switch, which we used to communicate from our LOS to DU and LP. It converted the 1003 into our format. It was that extraction layer for our data transfer. Right now, we’ve got that bus, there’s just no project underway to connect it, just because there are so many other demands on our resources. But it’s a good idea and it’s something that, if there were enough push from our lenders, we would absolutely consider it.
MT: When you look at what had to be done to update the Selling System and what Fannie Mae had to do to update their Loan Delivery system to get ready for ULDD, can you give some insight behind not going with a joint portal, similar to the way that UCDP was built as a joint portal for the UAD appraisal files?
Lux: That was before my time. And we’ve kind of been kept at arm’s length. We’re competitors and I believe that a lot of the logic, not the portal so much, but the logic in our Selling System and in their system is considered proprietary. That’s the special sauce, the rules that are in there. I think that was the idea, to keep these separate and distinct. I think that is still the direction.
Our systems, you could say the same thing from a technology perspective, how much is really proprietary, competitive advantage from an IT perspective between the two GSEs and how much of this is just kind of commodity stuff that we can save money by combining? Right now, my understanding is that there’s really no appetite to combine or share in any way, shape or form.
MT: Is that on the part of the FHFA or from Fannie and Freddie? There’s certainly appetite on the part of the lenders and LOS vendors, who look at the ULDD file and see that it’s 90% consistent and are scratching their heads at that last 10% wondering why can’t the GSEs get this figured out. Is that last 10% really that much of a competitive distinction between for two companies who, for all intents and purposes, are owned by the federal government? Is it really worth it?
Lux: That’s a fair question. How much of the extra burden you put in terms of distinction, differentiation really adds to any competitive advantage. To be honest with you, I don’t know how the decision was made back in the day when they sprung this up.
You’ve got to go back; these folks who made these decisions when we went into conservatorship, I think a lot of people thought it was only going to be for a couple years, so we’ve got to keep these entities separate and distinct because it’s going to be two or three years and they’re going to emerge from conservatorship and it’ll be done.
Now, the timing it seems like may be broadened. So I can’t second guess a lot of the decisions that were made by others back then because they were probably working on a different set of assumptions than we are right now.
MT: If the assumptions are different, should the decision be reevaluated? Or is it too late, given everything already done to update the Selling System?
Lux: Right now, we’ve got to get it out there as is and then there’s always room for refinement and basically taking things that may be separate and distinct and normalize them. You can always do that down the path. But I think people would prefer that we get it out there, versus let’s take another step back and try to normalize this and it may lead to another delay. No more delays. I think everyone involved just wants to deploy it, everyone gets to use it and we’ll probably get a lot of feedback after it’s live that we can then use as input.
MT: What needed to get done or needs to get done with the ULDD side of UMDP that couldn’t get done by March 19? Back in December, when FHFA said it was going to be pushed back a couple months, what couldn’t get done?
Lux: We hit all of our mandatory project dates and we’re prepared to release on whatever date the regulator tells us to do, which is July.
Our commitment is to meet and honor our commitments and hit those dates. We take them really seriously. Our business strategic projects, we only focus on the mandatory and the tech refresh stuff first, so that we get those done because those are things that are mostly customer facing, where people are doing a lot of work outside of Freddie Mac to be ready for them and we don’t want to let those people down.
MT: So what does this extra time give you the opportunity to do internally or with your customers?
Lux: It gives us more time to get feedback from the customer test environment in terms of the usability of the interface and to make sure that it’s as easy for the customers to use as possible.
The second thing is that it gives the opportunity to refine and enhance our rules sets. This whole business data management system that houses our rules, we’re going to be making sure that those rules are as perfect as possible and they’re refined. That’s what we’re really going to be looking at, the credit rules and all of that. It’s not testing, it’s refining those rules and making sure they catch as much as possible on the front versus on data quality being done on the back end. It gives us a little more time, but really, that’s it. We’d prefer to go sooner, rather than later.
MT: Now that the appraisal delivery system is up and running, what will you do with the data? Does Freddie Mac intend to build an AVM with this data?
Lux: The GSEs, every bank has an AVM and you’re always looking to enhance your AVM. But I think the idea is to get data in data format, versus paper appraisals. That is also to say that by linking some of those data elements together, we can make sure the data is accurate. Also, to do look back and see if you have issues with certain appraisers or appraisals. What were those issues? Basically, to get better. The only way to get better in any industry is by taking the data, doing some analytics and doing a look-back at the data and do better predictive modeling and enhance our data quality to make sure that when we’re securitizing the loan, that the taxpayers’ money is safe.
