Credit unions value close relationships with their members and earn loyalty from those members by providing the highest level of customer service, including the efficient origination, processing, and closing of mortgages.
As part of sound business practice, credit unions also want to ensure they adhere to high lending and underwriting standards, maintain a focus on data quality, and experience the smoothest loan delivery execution.
The post-mortem of the housing crisis presented a painful lesson for the industry, but things didn’t have to turn out that way. Many loans had investor eligibility issues that were only detected after the loans became seriously delinquent or defaulted. Patterns of loan defects went unidentified and unaddressed for years, dragging down the entire industry. As a result, even lenders with a consistent focus on quality, like credit unions, recognize the need for an updated industry business model that provides relief from the uncertainty of long-term repurchase risk.
In September 2012, Fannie Mae and Freddie Mac announced an updated representation and warranty framework that will provide lenders more clarity, certainty, and transparency regarding repurchase risk. With some exceptions, lenders’ repurchase obligations will sunset (i.e., expire) after 36–60 months for most performing loans.
Focus On The Loan Manufacturing Process
To support the new framework, the industry is shifting its focus to the loan manufacturing process, emphasizing the importance of data quality and verifying loan data upfront. Fannie Mae has implemented a new discretionary post-purchase review process to do just that.
Much like credit card users have their cards validated by merchants at the point of sale, we will validate the loan data delivered to us soon after loan acquisition and notify our lenders as soon as possible when we have concerns. We are also committed to providing both loan-level and lender-level feedback to help lenders identify and address any potential issues in their business processes. Because we will assess all loans we acquire, almost all lenders delivering loans to Fannie Mae can expect to see some impact on their business.
Credit unions are well-positioned to adapt to this change by building upon their historical focus on quality. Fannie Mae provides a number of tools and resources that can assist credit unions in identifying and mitigating any potential defects in their loan manufacturing process.
Tools And Resources To Support Lenders’ Efforts
For example, many credit unions find EarlyCheck™, offered by Fannie Mae to its approved sellers, helps them deliver high-quality loans with greater certainty at the time of delivery. EarlyCheck evaluates a loan’s data against more than 500 loan delivery eligibility and data edits. The lender can use the tool at any point in the loan manufacturing process including pre-funding and just before loan shipping as part of an overall quality control program. EarlyCheck includes some of the same validations as Fannie Mae’s loan-level assessment tools that will identify loans for discretionary reviews under the new process.
Credit unions, with their history of responsible and sustainable lending, have demonstrated that a culture of quality motivates everyone who touches a loan to take responsibility for accurate information and prudent risk assessment, which is the hallmark of a well-planned quality control program. By considering the addition of a few tools and strategies to their well-established focus on quality, credit unions can successfully transition to the updated industry validation model.
Visit the new Loan Quality page on FannieMae.com/singlefamily to access details about EarlyCheck, view a recorded tutorial on lender quality control, or download a readiness checklist for Fannie Mae’s updated post-purchase review process. There you will also find ideas for getting the most from your quality control program, suggested strategies for managing post-purchase risk, and many other tools and resources.
Jennifer Whip is the vice president for customer engagement at Fannie Mae. Fannie Mae provides more than 1,100 lenders of all sizes with access to credit and liquidity. While our customers’ business strategies may change, Fannie Mae’s business goal remains constant: to support a stable, liquid, and efficient mortgage market.