Perspectives

How "Alphabet Soup" Led to Day 1 Certainty

Andrew Bon SalleUMDP, UAD, UCDP, URLA, UCD … the industry calls these acronyms “alphabet soup” – and not with affection. They represent industry-wide efforts to create uniform data standards, and the work to adopt them has been a pain point for lenders. But these efforts also reflect a long-overdue investment in data quality and efficiency. Now, we are beginning to see the return on investment.

Thanks to data standardization and uniformity, lenders can now get Day 1 Certainty – freedom from representations and warranties on key loan components plus more speed and simplicity.

Then and Now
Less than a decade ago, residential appraisal reports were not even digitized, with no standard formats even for simple things like dates. Property condition was described in wildly nonstandard, free-form terms such as “Average New,” “Average Old,” and “Typical.” The number of bathrooms in a property might be listed as 1.5 or 1.1, both meaning a full and a half bath.

The Uniform Appraisal Dataset (UAD) standardized appraisal data, and since 2012 Fannie Mae has required digitized appraisal reports. With that foundation, we developed Collateral Underwriter® (CU). Pairing advanced analytics with a database of more than 23 million appraisals, CU is a powerful appraisal risk assessment tool that we provide free to our lenders. Now there is even more. CU enables Day 1 Certainty in two ways:

  1. Lenders receive freedom from representations and warranties on the appraised property value on eligible loans with a CU risk score of 2.5 or lower – about 60 percent of all appraisals submitted to Fannie Mae!
  2. Enhanced Property Inspection Waivers (PIWs) provide offers to waive an appraisal on about 20 percent of limited cash-out refinances. Lenders get freedom from representations and warranties on property value, condition, and marketability; borrowers can save the cost of an appraisal; and a shorter origination process benefits everyone.

Data Powers Industry Efficiency
Combine standardization with so-called “big data” and that’s the power behind the Desktop Underwriter® (DU®) validation service – another Day 1 Certainty offering. Data power enables a simpler, more accurate digital process. With electronic validation of income, assets, and employment, lenders and borrowers benefit by moving away from the manual processes prevalent in the industry today.

Pilot lenders who test-drove the DU validation service told us it brought efficiencies to their business processes, shortening originations by four to seven days with quicker pre-approvals and meaningful time savings for loan processors and underwriters. And lenders get Day 1 Certainty with freedom from representations and warranties on validated loan components.

Congratulations, Industry!
We congratulate and thank our lender and industry partners for making this progress possible through their hard work in implementing data standards. Day 1 Certainty is the next step forward on the industry’s journey toward a more efficient automated approach to originating mortgage loans. We’ve come a long way together … and that painful alphabet soup is now helping to bring pain-relieving Day 1 Certainty.

Andrew Bon Salle
Executive Vice President, Single-Family Mortgage Business

March 2, 2017