It is true that new rules, regulations and procedures
introduced to the mortgage process in an effort to
fix issues that led to the housing crisis have brought
increased costs and processing time plus uncertainty around the underwriting process. Recent initiatives such as Fannie Mae’s Day 1 Certainty and
the loan-review system introduced by the Federal
Housing Administration (FHA) have the potential to
bring more predictability to the process.
Issues still remain, however, such as uncertainty
around enforcement of CFPB consumer-protection
rules and regulations and issues with lawsuits brought
under the False Claims Act. These problems don’t just
impact lenders and underwriters, either. Mortgage
originators who have their loans held up, rejected or
repurchased also feel the squeeze. These issues affect
the entire industry.
One success from the issues that arose out of the
housing crisis is the increased use of technology in the
mortgage process. Day 1 Certainty is a recent effort by
Fannie Mae to provide relief to lenders and mortgage
companies from future representations and warran-
ties liability with regard to key loan-data components
of the mortgage origination process. The program
provides income, employment and asset validation
through Fannie’s automated underwriting systems to
reduce repurchase risk due to issues with data quality.
Fannie rolled out Day 1 Certainty initially as a
pilot program to several lenders with income validation. By the end of 2016, employment and assets
validation also became available. Today, Fannie
Mae’s Day 1 Certainty is available to any lender who
is willing to opt in.
A benefit of this approach is to reduce risk and
create speed, simplicity and overall certainty in the
mortgage process. By allowing lenders to use electronic data — instead of collecting income documentation like pay stubs, W2s and bank or investment
statements — it is possible to create a better loan and
a better borrower experience.
Day 1 Certainty has reps and warranties relief
for appraised values as well. With the use of the
Fannie Mae Collateral Underwriter (CU) tool, appraisals with a CU risk score of 2.5 or less have the
appraised value represented and warranted. Less
time is spent on these appraisals, so more time can
be spent on higher-risk appraisals that have a CU
score of 2.6 or higher.
In addition, with the Property Inspection Waiver
reflected in the Desktop Underwriter (DU) findings
on refinance transactions, borrowers are not
requiredto pay or wait for an appraisal, which
simplifies the process and lowers the cost. Lend-
ers also receive representation and warranty relief
on the property value entered on the application,
condition and marketability.
Unfortunately, lenders and mortgage companies
are dipping their toes into Day 1 Certainty slowly
so far. One reason may be that it has taken a lot of
effort for those companies that have signed up. The
successful integration of loan origination systems
(LOSs) with Fannie Mae and the validation services
that provide income and employment verification
are integral to success.
Changing the mindsets of originators about getting documentation validated rather than collecting
documentation also can be a challenge. Plus, it is
critical to test and re-test (and re-test) the LOS integration before rolling it out to the entire company.
Reportedly, however, for those making it work,
Day 1 Certainty yields strong results — both in terms
of reduced repurchase liabilities and a streamlined
underwriting processing. At a minimum, it is a good
option for a mortgage company’s underwriters to
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