According to HousingWire, the two government-sponsored enterprises are making moves to streamline the mortgage process and reduce risk by tackling income verification and occupancy fraud. Fannie Mae and Freddie Mac have already saved borrowers significant money through innovations in appraisal alternatives and simplified title requirements, and now they're turning their attention to other areas where problems and costs still exist.
Freddie Mac has been testing an automated income verification tool that's showing real promise in early deployments. The tool cuts down the time it takes to process loans by nearly ten days and reduces the number of times a loan needs to be touched by underwriters. Though they've only funded a small sample so far, the results are encouraging enough that they're continuing to expand the pilot program with select lenders.
Fannie Mae has taken a different but complementary approach to the income question. Their income calculator has already been used to evaluate over half a million loans across hundreds of lenders, and it's helping them catch defects related to borrower earnings before they become problems after closing. Beyond that, Fannie Mae launched a new tool within their Desktop Underwriter system specifically designed to flag occupancy misrepresentation, which they've identified as the source of about one-fifth of the defects they see after loans close.
The GSEs are framing these tools as part of a broader strategy to reduce what they call repurchase risk, which happens when loans have to be bought back due to quality issues discovered after closing. By layering these data validation services together, the enterprises believe they can cut repurchase risk dramatically. This matters because when lenders have fewer buyback problems, they can pass those savings along to borrowers through lower closing costs.
What I am seeing locally in the Bay Area and East Bay is that borrowers are always looking for ways to save money on their mortgages, and these kinds of efficiency improvements at the GSE level do eventually make their way down to what people actually pay at closing. When Fannie and Freddie can process loans faster and with more certainty, that creates a smoother experience for everyone and potentially better pricing for our clients.
