Improving Loan Quality Through the Uniform Mortgage Data Program
Late this year, the mortgage finance industry will take a big step forward in improving loan quality. The concept is simple: better data means better loans. At the direction of our regulator, the Federal Housing Finance Agency, Freddie Mac and Fannie Mae are working together to champion and implement the Uniform Mortgage Data Program (UMDP), an initiative designed to improve the consistency and quality of data when loans are delivered to us. Creating a common language through data standards that are used and understood by all stakeholders will help us identify potential defects earlier in the mortgage process, improving the quality of our mortgage purchases and reducing repurchase risk for lenders. It’s also an important part of Freddie Mac’s efforts to build a strong foundation of responsible lending practices – ensuring loan quality through sound underwriting that is supported by strong technology and business processes.
Our data shows that loans with data defects – like appraisals that do not support property values and mortgage amounts that exceed maximum loan-to-value ratios – are more likely to become seriously delinquent within the first year. Identifying data defects early on will give lenders greater confidence that the loans they deliver to us meet our requirements, potentially reducing costly repurchases.
We are developing data standards for appraisal and loan delivery data first, utilizing MISMO industry standards around reference data points, data definitions and file format. At the same time, we are implementing standard data definitions that will enable everyone from appraisers to investors to speak the same language, meaning that the ambiguities in the definition of data from one party to the next will be minimized. For example, appraisals for identical properties often classify the property condition vastly differently – one as “good” and the other as “brick.” After UMDP implementation, appraisers will have only select valid property condition values to choose from, and also clear parameters on how to evaluate these conditions. We expect to start seeing immediate benefits to data quality across the entire loan manufacturing process.
In addition to increasing lender confidence, data standardization will also reduce costs and time for originators because lenders large and small will be using the same root data at loan delivery, minimizing manual processes and data corrections.
Finally, this initiative will greatly enhance the depth of information we receive about the borrower, the loan and underlying collateral – improving our ability to manage risk. Accurate and robust data lies at the heart of risk management and our responsible lending objective here at Freddie Mac, helping us ensure we are putting families in home they can afford to buy and keep for the long-term.
At Freddie Mac, we’re committed to helping to establish and implement data standards because we know that improving loan quality is important for lenders, for borrowers and for the long-term future of the mortgage finance industry.
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