OREANDA-NEWS. New methods of managing and verifying data are helping Fannie Mae and Freddie Mac change the US mortgage underwriting process, according to Fitch Ratings. New approaches to appraisal valuation and income verification are improving these government-sponsored enterprises' (GSE) ability to assess credit risk, while reducing costs for sellers and borrowers. These improvements are credit positive for the credit risk sharing transactions issued by Fannie Mae and Freddie Mac.

The two entities acquire the majority of mortgage loans in the US. The appraisal valuation process is evolving primarily due to the introduction of the Uniform Collateral Data Portal through which lenders electronically submit appraisal reports for conventional mortgages delivered to Fannie Mae or Freddie Mac. The information is aggregated and tracked in a rapidly growing database that currently includes more than 20 million appraisals, an unprecedented amount of property valuation detail.

The improved appraisal data availability allows Fannie Mae and Freddie Mac to assess valuations on new loans with greater confidence by referencing details of nearby properties or a prior appraisal of the borrower's property. The benefits of the tools that leverage the database are passed on to lenders through representation and warranty relief on certain loan components and to borrowers by waiving the need for a new appraisal in some cases.

In addition to the changes occurring with appraisal valuations, Fannie Mae recently introduced a process of directly verifying a borrower's income, assets, and employment by using third-party vendor data, allowing for greater certainty on the accuracy of borrower provided information. Lenders and borrowers benefit through shorter processing times and less required paperwork, as well as representation and warranty relief on validated loan components for lenders.

Freddie Mac has not yet implemented the third-party direct verification of income and assets, although it recently introduced a pilot program.

Fitch views the representation and warranty relief as only adding modest risk to investors due to the limited circumstances in which it is provided. Additionally, for Fannie Mae risk-sharing transactions, the relief provided to sellers does not add any risk to investors as Fannie Mae will repurchase loans subsequently identified as having an underwriting defect, even if the original lender is not obligated to repurchase the loan from Fannie Mae.