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Fannie Mae gives go-ahead for digital verification

Mortgage servicers can implement the flexibility immediately

Fannie Mae has given mortgage servicers the green light to use third-party digital vendors to verify income and asset information. Unsurprisingly, mortgage tech firms are thrilled.

In a June 9 note, the government-sponsored entity told mortgage servicers they could implement the changes immediately. Servicers can use a third-party vendor to verify the information that the borrower provided in their mortgage assistance application.

Fannie Mae also noted that servicers will be responsible for the “security, accuracy, and integrity of the information obtained from the third-party verification vendor.” Servicers must also obtain legal authorization to use a third-party vendor, and must retain all verification reports in the loan file.

The flexibility is expected to help mortgage servicers work through the backlog of borrower requests as mortgages come out of forbearance. According to the Mortgage Bankers Association, 2.32% of Fannie Mae and Freddie Mac mortgages are still in forbearance.

As those loans come out of forbearance, federal regulators have made it clear that they will be closely monitoring how servicers navigate requests from borrowers.

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Presented by: Acra Lending

In April, the Consumer Financial Protection Bureau bluntly told mortgage servicers that “unprepared is unacceptable.” The consumer watchdog agency told servicers that it would ramp up enforcement and monitor how servicers manage borrowers coming out of forbearance.

“There is a tidal wave of distressed homeowners who will need help from their mortgage servicers in the coming months. Responsible servicers should be preparing now. There is no time to waste, and no excuse for inaction,” CFPB acting Director Dave Uejio said at the time.

Firms that provide digital verification services welcomed Wednesday’s announcement from Fannie Mae.

Eric Rachmel, CEO of Brace, a mortgage servicing technology firm, said that being able to provide a digital asset report helps servicers streamline the loss mitigation process.

Servicers “no longer need to do the paper chase,” Rachmel said. He added that in some cases, using digital tools to verify income and asset information can turn a weeks-long process to being resolved in less than 30 minutes.

Using digital tools to verify asset and income information represents an opportunity for servicers to ensure borrowers are being treated consistently, said Thomas Showalter, CEO of mortgage AI firm Candor. It’s also much better than the alternative: Manually re-underwriting two million loans coming out of forbearance.

“Instead, you have the opportunity to take secondary market guidelines and apply an extremely consistent approach for every borrower,” Showalter said.

But not all underwriters may be excited for their functions to be automated. It depends on the underwriter: some like the digital tools because “it frees them up from the mundane tasks and allows them to do the interesting stuff,” Showalter said.

“But I don’t know where the 20th percentile underwriter stands. Maybe they feel threatened. I can tell you that his or her boss would certainly like to swap out the 20th percentile underwriter for a 90th percentile underwriter.”

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