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June 1 Deadline for Quality Initiative

Several service providers have updated their offerings to help mortgage lenders meet Fannie Mae’s new loan quality initiative. Fannie also tightened qualification requirements for short-term adjustable-rate products, while Freddie Mac announced changes to a rural program.

An April 8 bulletin from Freddie Mac, No. 2010-9, indicated that the maximum loan-to-value on Rural Housing Service Section 502 cannot exceed 115 percent as calculated under the requirements of Section 23.2.

In addition, Freddie said Essent Guaranty Inc. was approved as a mortgage insurer.

Lender Letter LL-2010-06 from Fannie Mae was prompted by several questions from seller-servicers about Property Assessed Clean Energy loans — government-sponsored energy loans. The letter noted that PACE loans generally have automatic first-lien priority over previously recorded mortgages, and terms of the Fannie Mae/Freddie Mac Uniform Security Instruments prohibit loans that have senior lien status to a mortgage.

“As PACE programs progress through the experimental phase and beyond, Fannie Mae will issue additional guidance to lenders as may be needed from time to time,” the letter said. “Questions should be directed to [email protected] with the subject line ‘PACE.'”

In Announcement SEL-2010-06 issued on April 30, Fannie said borrowers on adjustable-rate mortgages with initial terms of five years or less will need to be qualified at the greater of the note rate plus 2 percent or the fully indexed rate. The change impacts whole loans purchased on or after Sept. 1 or delivered into mortgage-backed securities pools issued on or after Aug. 2. The secondary lender said it wants to protect borrowers from dramatic payment increases and unsustainable payments.

“These policy changes reflect our intention to continue providing liquidity to different market segments by ensuring that support for ARM products remains in appropriate circumstances,” Fannie Senior Vice President of Single Family Credit Policy and Risk Management Marianne Sullivan said in the statement.

Fannie also will require than loan-to-values on interest-only mortgages not exceed 70 percent. Interest-only borrowers will need credit scores of at least 720 as well as 24 months in liquid reserves. Interest-only balloons will require special approval.

Fannie Announcement SEL-2010-04 said the delivery of Texas Section 50(a)(6) mortgages was changing from a variance to requiring lenders to obtain special approval. It also indicated that DU Refi Plus is being updated to permit the removal of borrowers from refinance transactions for any reason, not solely due to death or divorce — though they must be removed from the deed and the remaining borrower must qualify on his or her own.

Other updates addressed in SEL-2010-04 included an updated social security number matching process, conversion of construction-to-permanent financing and borrower-paid fees on pre-foreclosure and short sales.

Informative Research said today that its PreCloseCredit meets the requirements of Fannie’s loan quality initiative, which is effective on June 1. The new offering includes a comparison summary report that shows changes from the initial credit report and addresses Fannie’s undisclosed liability requirements.

Washington, D.C.-based Fannie issued on Feb. 26 Lender Letter LL 2010-03, An Introduction to Fannie Mae’s Loan Quality Initiative, which identified updates aimed at enhancing the lender’s ability to deliver loans that meet the guidelines. Selling guide update SEL-2010-01, which was issued on March 2, outlined the initiative, and Announcement SEL-2010-03, issued on March 29, covered selling guide updates for the quality control standards.

Also touting its Fannie loan quality initiative capabilities was Credit Plus Inc., which this week said several of its quality-control tools can be purchased individually or in a bundled package. Among the offerings are tax return verifications, electronic appraisal ordering and a tool that compares the credit report at closing to the report used during originations,

Earlier this month, Kroll Factual Data announced a set of services that help mortgage lenders meet Fannie’s new requirements. Kroll said its services are available in a package or al a carte and address the quality-control process from pre-qualification to post-closing.

The service will reportedly eliminate the burden placed on loan processors from the new requirements. It will also reduce re-purchase exposure.

Kroll explained that lenders will need to have processes in place to meet Fannie’s new policy relating to fraud prevention and undisclosed liabilities. This includes best business practices that ensure borrower liabilities which are incurred up to closing are disclosed and used in the loan qualification — requiring “re-verification of the borrower’s credit standing and proactive identification of any and all undisclosed liabilities that may affect loan eligibility right up to the date of closing.”

SettlementOne said in a recent statement that the quality initiative aims to mitigate lenders’ repurchase risk. The San Diego-based service provider said more lenders are relying on its direct connection to the Social Security Administration to instantly validate social security numbers and produce corresponding confirmation.

New DRIVE technology features help lenders comply with Fannie’s new requirements, DataVerify announced on April 26. The fraud-management system is tailored to the new guidelines and analyzes identity, application information and the property.

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