Monday, March 10, 2008

Fannie works on AU system

National Mortgage News reported in its Daily Briefing today that Fannie May will begin buying Jumbo loans on April Fool's day (I ascribe no particular significance to that, other than realizing that the only reason the GSE is being permitted to move beyond its charter and into these products is because the market doesn't understand them and punishes good lenders who offer them, which isn't foolish so much as ignorant, I guess).

The problem for Fannie is that all of the new business will have to be underwritten by hand since its automated underwriting system doesn't understand nonconforming product.

Now the industry will see why all of our new technology is being built on Services Oriented Architectures (SOA) and to capitalize on Business Rules Management (BRM). If Desktop Underwriter was a newer tool, Fannie could just plug in any number of third-party AU systems and bounce the deals out for fast, cheap underwriting before making a decision. Instead, the GSE will probably have to hire a staff of outsourced underwriters who will add additional layers of process to the transactions at that same time it piles on the risk of human error, lost paperwork and lots of extra time.

In Fannie's defense, DU (and Freddie's Loan Prospector, for that matter) were developed long before the new technologies were available and helped drive technology development for the entire industry. That's the bleeding edge. Why the GSE didn't plow some of the profits it has realized over the past 5 years into upgrading the technology isn't clear.

I only bring it up to point out that while we may be tired of hearing all the tech acronyms, they really are important.

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