New Fannie Mae and Freddie Mac Mortgage Reforms

By Mike Colpitts

Reacting to public outcries over the foreclosure crisis, the Federal Housing Finance Agency has released a sweeping new series of major mortgage reforms to improve the quality of home financing for the nation’s two mortgage giants, Fannie Mae and Freddie Mac.

Home Auction

FHFA regulates Fannie Mae, Freddie Mac and the twelve federal home loan banks.The efforts are part of the Obama administration’s move to improve the U.S. housing market.

“The Uniform Mortgage Data Program” is a joint effort between bankers, appraisers and other industry leaders to improve mortgage underwriting in efforts to limit the number of problem mortgages. More than 7.2-million homes have already been foreclosed as a result of the foreclosure crisis, according to government officials.

“This initiative is a major step toward meeting industry requests for uniformity in appraisal and loan data (collection),” said FHFA Acting Director Edward DeMarco. “Improvements in data quality will benefit all mortgage market participants and strengthen the housing finance system.”

A streamlined framework of underwriting requirements is intended to increase the efficiency of lenders and allow banks to manage risk more effectively, limiting the number of problem mortgages. The program will be implemented over a series of months as mandated by the FHFA, which was started by the Obama administration to assist in the housing crisis.

Under the plan, loans sold to or guaranteed by Fannie Mae and Freddie Mac will include complete data on loan characteristics, borrower information, the property securing the loan and the identity of the parties creating the transaction, including real estate agents, appraisers and bankers. The efforts are intended to streamline mortgage underwriting and limit damage to the economy.

New appraisal standards will include the direct electronic submission of appraisals to Fannie and Freddie. A new set of forms will also be submitted by loan originators directly to the nation’s mortgage giants for processing. The new reforms will be required in steps to be implemented over a series of months through September 1, 2011.

Freddie Mac CEO Charles Haldeman Jr. welcomed the changes to the troubled mortgage market. “We applaud FHFA on this important effort to improve appraisal and loan quality,” said Haldeman. “The importance of data quality to the mortgage market’s long-term success makes this the right call at the right time.

“The additional loan and appraisal data requirements, standard data definitions, and a common framework for capturing these new data sets will support the mortgage industry’s efforts to manage risk, reduce costs, and respond more efficiently to market changes.

“We look forward to working closely with FHFA and Fannie Mae on this important effort to improve appraisal and loan data quality and help make homeownership opportunities more sustainable through various market cycles.”