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Fannie Technology Draws Concern

Trade groups write letters to GSE

November 1, 2006


Fannie Mae, facing pressure from trade groups who are attacking its patent on a new loan customization system, is beginning to address the groups' concerns.

Two letters, one from the Mortgage Bankers Association and another from six related trade groups, ask that the patent be made available to the public or actually be placed in the public domain so that the marketplace can continue to develop without fear of patent infringement litigation.

Further, MBA is "looking at at least one other [Fannie Mae] patent," Steve O'Connor, MBA's senior vice president of public policy, told

In its letter, MBA charged that the patent, which was granted last August 8, covers many processes that lenders and others currently use. The patented system, which matches borrowers with loans that are designed to meet their needs and qualifications, "spans many aspects of the mortgage lending process" from initial borrower interest to origination, secondary market sale, servicing and refinancing, MBA said in its letter.

Similarly, a separate letter from the American Bankers Association, America's Community Bankers, the Consumer Mortgage Coalition and three other trade groups, maintained that the patent is "broad in its scope" and "replicates prior art for processes, systems and methods that were in place in the financial services industry even before the Patent was applied for in 2001."

"We are concerned," stated MBA's letter, which was signed by MBA Chairman Regina M. Lowrie and directed to Fannie Mae President and CEO Daniel Mudd, "that even the possibility of royalties or injunctions related to this patent may cause industry participants to refrain from using existing or developing new technology."

The "mere existence" of the patent, the letter warned, could "stifle important innovation in the lending industry, thus harming consumers and diminishing market competition."

Even current initiatives now under development by various lenders and vendors, said O'Connor, could be covered by this patent, which "has the potential to stifle innovation because entities will be concerned that they might run afoul of the patent and be penalized for an infringement."

Fannie Mae, Communications Director Brian Faith explained to, "is not pursuing the process underlying the patent" and plans on "allowing primary market participants to use this tool."

But such promises are not enough, according to ABA's letter.

"Given the current state of patent infringement litigation, however," their letter to Mudd stated, "Fannie Mae's mere possession of this Patent could chill innovation in the marketplace. Few firms would be willing to risk a future patent infringement claim, whether by Fannie Mae or by another firm in which Fannie Mae might transfer the Patent."

Freddie Mac would not comment on what spokesperson Brad German called a "Fannie issue." Nor would German speculate what impact Fannie Mae's patented system could have on Freddie Mac in the loan origination market, although he admitted that the GSE does not have a system similar to Fannie's.

"We look to lenders to do the matching" of borrowers and mortgage products, he said.

But MBA's O'Connor said that Fannie Mae's exclusive patented system could "potentially" give Fannie an edge in the market, with originators choosing to sell loans to Fannie, and not Freddie, because of the system.

Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at [email protected]

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