Fannie Mae EarlyCheck looks to reduce future repurchase risk
Fannie Mae launched a new product over the weekend that provides automated data checks at every point along the origination application process. EarlyCheck and is another part of the government sponsored enterprise's Loan Quality Initiative, designed to prevent bad loans from being funded and put into the marketplace.
Between 2005 and 2007, many of the loans originated did not meet crucial standards set by the GSEs. Banks are now being forced to repurchase those loans. But director of the Federal Housing Finance Agency, Edward DeMarco, said in his congressional speech two weeks ago that the GSEs had more than billion in outstanding repurchase requests at the end of the second quarter. Fitch Ratings predicted in August that the buyback amount for just the big four banks could reach 0 billion.
As discussed at the Mortgage Bankers Association mortgage operations conference last week, EarlyCheck's main initiative is to eliminate the occurrence of repurchases in the future. The program will will alert the lender of 'fatal errors' regarding social security checks, occupancy checks, data integrity, loan-to-value calculation and eligibility that need to be revised before they can submit the application (some examples in graph below):
EarlyCheck can be used across all business channels and supports all underwriting methods. Although EarlyCheck is an optional service, it is highly regarded by the GSEs. An application is very likely to be approved if it has gone through the EarlyCheck system. If the application produces multiple red flags, or fatal errors, however, the whole process can be run again until all flags are taken care of.
EarlyCheck supports loans in the post-closing stage through the pre-delivery stage.
Write to Christine Ricciardi.