New GSE appraisal database to tighten scrutiny on mortgage lenders
Appraisers began submitting electronic property data for mortgages sold to Fannie Mae and Freddie Mac under new guidelines that took effect Thursday.
As a result, the government-sponsored enterprises will be building a massive database of every appraisal backing every mortgage sold to them. But the firms, which — combined with the Federal Housing Administration — guarantee or insure 95% of the entire mortgage market, have been silent on what they plan to do with the data.
This Uniform Appraisal Dataset defines the new ways appraisals will be submitted. The GSEs are also developing a Uniform Collateral Data Portal, where the appraisers can make the submission. The UCDP went into voluntary effect June 27 and the use of it will be a requirement starting March 19, 2012.
Elizabeth Myers, director of product and development at Fannie Mae, made clear in an interview with HousingWire the new guidelines will help lenders catch and fix appraisal issues, which played a role in growing the housing bubble earlier in the decade.
"These changes support Fannie Mae's loan quality initiative," Myers said. "We want to get information early within the process to know if there are any eligibility issues. The lender then has the opportunity to make adjustments before the sale closes."
But then there's the data.
Rich Andreano, a partner at the financial law firm Patton Boggs told HousingWire those in the industry are wary of this new vault of appraisal information.
"Once you standardize it and automate it, it makes it easier to study a group of loans. Someone can conduct the analysis and say, 'Hey, you know we took a look at all the data and we noticed a trend that is troubling," Andreano said. "They can look at where appraisals are coming, if they're coming from certain areas, which appraisers are getting work, and they can raise questions that suggest further due diligence is needed."
Lenders know that with access to this kind of data, the GSEs will have an easier time enforcing repurchase and warranty claims. The lender can be made aware of a possible appraisal problem before the loan is even closed. If the lender goes ahead and sells the mortgage to Fannie or Freddie anyway, the risk of having to repurchase that mortgage if it slips into nonperforming status skyrockets.
"Fannie and Freddie can basically say, 'We are going to look at it, so you might want to look at it," Andreano said. "On an individual loan basis there could be more scrutiny and questions for lenders."
Myers said lenders were ready for the shift, and the process is going smoothly.
"It's a very large transition," Myers said. "We have been working with the industry to prepare for these changes and will continue to address any issues that may arise."
Another wrinkle is if Fannie and Freddie are wound down, would replacement entities have access to the same information? And as the government unwinds its current market dominance, will private issuers of securities apply similar guidelines and build a similar database of appraisal information?
To Andreano, it isn't clear. Nothing is clear when it comes to the future of mortgage finance, but if the current strictness of newly originated loans are any evidence, lenders will definitely err on the side of caution by closely monitoring these new appraisals.
"There could be a good use of the data. If Washington has better access to the movement of property values as it tries to determine the best housing policy going forward, then the industry would applaud the use of it," Andreano said. "But they're also asking, 'Is it going to be used to show I didn't do my job?'"
Write to Jon Prior.
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