They say the average mortgage application contains some 500 pages, which explains part of the frustration mortgage borrowers feel when going through the loan process.
But Fannie Mae and Freddie Mac want to ease that burden by finally digitalizing the mortgage experience.
Both companies announced upcoming changes that will go live in December and next spring.
Come December 10th, Fannie Mae will add both asset and employment validation to its stable of useful loan origination tools.
That means borrowers will no longer need to provide work paystubs, bank statements, or investment account statements.
Well, that’s the theory at least. We will see how it actually pans out…
‘A Dramatically Better Mortgage Experience’
Currently, borrowers are often asked to fax or e-mail these types of documents to verify income, assets, and employment.
But as with most things, it can get complicated when pages go missing, are illegible, lost, etc.
The most common complaint I hear about when attempting to get a mortgage is having to send the same document twice (or three times or more).
At the moment, Fannie Mae is already validating income electronically, and in just over a month assets and employment will get the digital treatment too.
Fannie expects these changes to result in “a dramatically better mortgage experience.”
Again, we’ll see how it turns out because technology has its own problems, but it’s certainly welcome news for both borrowers and lenders.
Greater Certainty for Lenders
While borrowers will be less burdened with paperwork demands, banks and lenders will feel more comfortable delivering loans to Fannie Mae and Freddie Mac knowing the information is being verified upfront by their own systems.
Instead of relying on some paperwork from the borrower that may or may not be valid (or current), they can run it through the automated system to reduce uncertainty and risk.
Fannie refers to this as “Day 1 Certainty,” which in a nutshell give lenders “certainty on Day 1” that they’ll be free from reps and warranties for income, assets, and employment information that is validated through Desktop Underwriter (DU).
This Day 1 Certainty will also allow lenders to forego an appraisal on certain transactions, such as rate and term refinances with lower LTV ratios.
They say this will allow lenders to focus their attention on those higher-risk appraisals instead, while also streamlining the process with loan underwriters.
Loans are often delayed by appraisals, and the costs of an appraisal has risen dramatically in recent years.
Freddie Mac is making similar updates that will roll out next spring.
• A no-cost automated appraisal alternative
• Automated borrower income verification
• Automated borrower asset verification
• Automated assessment of borrowers without credit scores
Faster, Easier Mortgages for All?
It sounds like anyone who gets a mortgage backed by Fannie or Freddie (the majority of mortgages other than FHA and portfolio) will get the rocket treatment.
Still, you’ll have tons of pesky disclosures to sign along the way, which is never fun, albeit necessary.
The end result should be lower origination costs for lenders, which may or may not get passed along to customers.
Hopefully they will – but if anything, it should keep borrower costs from rising. Additionally, the home loan process should speed up as a result of these changes.
Instead of lenders fretting about loan quality, they’ll have more confidence to push loans through and close them with less delay.
Now they just need to figure out how to let borrowers e-sign all those mortgage documents to make the process really easy. It’d be nice to ditch the printer and the fax machine entirely.
Of course, this new era of automation means it’ll be more difficult to get away with nonsense going forward. That means less fraud, but perhaps less wiggle-room too.