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Perspectives
May 26, 2015

Rep and Warranty Relief Begins with the Right Technology

Christina Boyle
By
Christina Boyle, SVP and Head of Single-Family Sales & Relationship Management

We just wrapped up another MBA National Secondary Market Conference & Expo, which is always a great opportunity for the Freddie Mac team to meet face to face with our customers and colleagues throughout the housing finance industry. Email and telephone calls are fine, but nothing beats a personal meeting – and my team and I had a lot of them during our time in New York City.

You shared some common themes with us. Two that really resonated – because they're areas we're passionate about, too – are your desires to create access to credit responsibly and reduce costs through solutions and technology.

One of the key ways we're helping you expand access to homeownership is through technology. Building on the foundational work we've done with our Representation and Warranty (R&W) framework over the past few years, we're focused on enhancing our current technology and building new applications to give you additional R&W relief earlier in your loan production process.

And we're eliminating financial barriers to our tools. Just before MBA Secondary, we announced that, beginning June 1, we're making Loan Prospector® (LP) free for all of our customers. We're excited about what that means for you, and you'll be hearing more about that over the next several weeks.

LP and Loan Quality Advisor® remain the foundational tools in our suite that lead to R&W relief.

LP is Freddie Mac's automated underwriting system that gives you access to our credit requirements. The tool allows you to easily operationalize Freddie Mac's current credit policies to support your overall risk assessment of a mortgage application and help predict a borrower's ability to repay. Loans that receive an LP "Accept" receive R&W relief for borrower creditworthiness with validated data.

We're constantly updating and improving LP to make it work better for you. Last October, we made enhancements to feedback related to borrowers' liabilities; the result was increased transparency of debts excluded from the Debt-to-Income ratio and increased control over what's included in the debt calculation. We boosted usability in June 2014 by highlighting data inconsistencies that could cause repurchases. In October 2013, we provided new and enhanced feedback messages specific to borrower income. This was all part of a multi-year effort Freddie Mac launched in the first quarter of 2013 to improve the usability and clarity of LP feedback.

And we're not finished yet. We've targeted additional enhancements for this summer that will streamline the underwriting process and provide specific feedback around assets and reserves.

The other foundational tool in our R&W relief arsenal is Loan Quality Advisor (LQA), which provides lenders with Freddie Mac's view of loan risk and eligibility. The tool:

  • Validates that loans are consistent with Freddie Mac requirements.
  • Lets you make changes to comply with Freddie Mac purchase requirements before the loan closes.
  • Validates the LP result you or your correspondent uses to originate the loan.
  • Provides a summary of Freddie Mac's view of credit risk for loans not originated using LP.
  • Determines if third parties have originated loans consistent with Freddie Mac eligibility requirements.
  • Gives you an early view of potential loan delivery issues.

We've made a number of enhancements to LQA since its launch. Usability enhancements in February 2015 included a new notification feature to provide access to important LQA information; easier navigation through LQA screens; the ability to export multiple loan batches in a single loan export file; improved error messaging; and new import validation edits. We rolled out the LQA system-to-system interface in October 2014, which provided an automated way to submit loans to LQA directly from your loan origination or other desktop system.

You can expect to see continued usability enhancements to LQA with added flexibility, and tailored improvements based on user feedback and technology advancements.

Success through technology comes from gaining visibility into the manufacturing process as it occurs – for you and for Freddie Mac. This visibility allows us to give you clear insight into R&W relief eligibility well before you sell the loan. That's what tools like LP and LQA provide. We'll continue to refine the functionality and messaging of all our existing applications based on feedback from our lenders, so our tools are smarter and easier to use and our messages are easier to understand and actionable.

Throughout all of our efforts to enhance current and build new applications, we're dedicated to delivering results that more closely match your needs. We're especially interested in whether the applications are easy to navigate, what kind of user experience they provide, and – most importantly – the value Freddie Mac brings to your business through our technology.

By building smarter, more efficient technology – that provides simpler, clearer processes – we'll help you accomplish more in less time. Ultimately, that makes higher loan quality less expensive for you.

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