The reality of mortgage lending is change. Just when your mortgage lending department adjusts to the current storm, another sign of turbulence looms ahead.
It’s enough to overwhelm even the most experienced industry professionals.
Mortgages, however, still have significant potential for fee income, and members are still buying homes. The latest regulation standardizes the appraisal process, forcing wholesale and correspondent credit union mortgage lenders to scramble to comply.
Basically, the new process is meant to standardize appraisals with tools that deliver more consistent and understandable results to consumers and the government sponsored entities (GSEs).
Fannie Mae and Freddie Mac (the GSEs) released the Universal Appraisal Dataset (UAD) software reporting tool September 1, 2011, to rid the appraisal process of perceived inconsistent and sometimes confusing property descriptors.
UAD standardizes property features of an appraised home by using abbreviations instead of unique descriptions that vary by region. The technology “locks down” the abbreviated answers with a drop box menu of standard descriptions for the appraiser to use.
This new software is supposed to ensure consistency in the appraisal process, making it more accurate and efficient.
However, the new system takes time for appraisers, underwriters, and other mortgage professionals to learn. The new abbreviations have a learning curve, and while they’re becoming more understood throughout the industry, all of the professionals involved in the process are taking more time to comply.
Hence, delays are inevitable.
The second requirement, or layer, in the appraisal process is called Uniform Collateral Data Portal® (UCDP), the digital platform that Fannie and Freddie use to pool standard appraisals.
Everyone who submits appraisals to the GSEs on or after March 19, 2012, will have to use this portal if the appraisal is dated on or after December 1, 2011.
The big issue with uploading UAD appraisals to the UCDP portal for examination is that it doesn’t check to see if the appraisal data is accurate. UCDP simply checks to see if the form is complete.
If the UAD is completely filled out, then it’s accepted—whether or not it’s accurate.
This is rather ironic since the new UAD software was implemented to enhance the accuracy of these forms. This should be a concern for the industry in developing the new standards.
Another issue is consistency with agencies running UAD through the UCDP platform. For example, as of January 1, 2012, FHA requires all appraisers to use UAD standards, but it’s not necessary to run them through UCDP.
Only Fannie and Freddie require UAD to be run through the UCDP. But I think all UAD forms should be run through the UCDP portal—no matter what.
If they aren’t, credit unions, as lenders, don’t have a chance to sell the loans in the secondary market because they haven’t gone through the proper channels. Running them through the UCDP is one of those requirements.
Any UAD must be run through the UCDP to be acceptable. But by adding these new layers, the GSEs are making it more difficult to navigate an increasingly complex lending environment.
This difficulty also raises issues for members in the areas of cost and timeliness. Because of the added layers, there are fees to be covered, and these will trickle down to the borrower.
The new layers also incur more time for review and comprehension which, again, trickle down to the borrower by extending the time it takes to close. Not good in either case, but a reality for all lenders.
Another layer affecting this process—yes, there’s another—is the Uniform Loan Delivery Dataset (ULDD), a Fannie Mae and Freddie Mac mandate for lenders who sell directly to them.
If a credit union doesn’t sell to the GSEs but is a correspondent, it will most likely still need ULDD on all loans delivered to investors on or after March 19, 2012, with application dates on or after December 1, 2011.
ULDD supports the work to implement uniform loan delivery data standards and defines the data that are required at loan delivery based on loan type, loan feature, or other business requirements.
Adopting the ULDD will help improve data accuracy, simplify the exchange of data, and increase confidence that loan data delivered to Freddie or Fannie is complete and accurate.
I see mortgage providers partnering with credit unions, enabling them to be the lender that controls the process instead of being indentured to it.
These processes represent fairly significant changes that have occurred in the market. It all comes down to providing good service to members by controlling the lending process, providing additional income for the credit union, and protecting members from what could be damaging to them.
If not, credit unions must contract with appraisal management companies (AMCs) to place their appraisal orders. The AMC hires the appraiser and then runs the appraisal through the UCDP.
But with this process credit unions lose control and are at the mercy of the AMCs and their fees.
Credit unions must work with a provider that can guide them through mortgage lending in this new environment and provide more control over the process. The result will be a compliant mortgage program, better member service, and greater fee income.
Make sure your mortgage provider has the experience to weather stormy times in the industry.
RANDY SHANNON is vice president of correspondent lending for CU Members Mortgage.