Digital Workflows


Freddie Mac and Fannie Mae enhance their loan management systems

By Howard Schneider

Recent upgrades to automated underwriting systems that the housing government-sponsored enterprises Freddie Mac and Fannie Mae provide to residential mortgage lenders give community bankers a new reason to look into their capabilities.
Because these automated underwriting systems are Web-based, community banks don’t need to install software to get started. This arrangement allows lenders to expand their home loan product menu and grow their mortgage business without making an extensive technology investment.
Freddie Mac debuted its Loan Advisor Suite in July, which features Loan Product Advisor as a successor to the company’s Loan Prospector underwriting engine. Fannie Mae released a new version of its Desktop Underwriter in September.

Both automated underwriting systems offer similar capabilities and allow originators to determine whether their mortgages are eligible for purchase by the GSEs.
Community banks find that selling mortgages to Fannie and Freddie lets them expand their loan offerings into popular products such as adjustable-rate mortgages and 30-year, fixed-rate loans. Selling home loans also brings in fee income while reducing credit risk.

“Trended credit” analysis is an important Desktop Underwriter enhancement, says Mindy Armstrong, senior product manager in Fannie Mae’s single-family homes division.
Credit reporting firms Equifax and TransUnion currently supply trended credit data, says Armstrong. Trended credit examines two-year consumer payment histories on revolving accounts. It’s then possible to see whether borrowers are paying off their balances over time.
“That could help someone on the borderline to get approved,”
Armstrong says.

Added capabilities
Freddie Mac’s automated underwriting offerings have “a new look and feel,” which makes them easier to use efficiently and intuitively, says Andy Higginbotham, the company’s senior vice president of single-family strategic delivery.

Typically, lenders input borrower information into their loan origination system. Most LOSs integrate with the secondary-market automated underwriting system. Information then can flow from the originator’s software into the underwriting system.

Lenders who originate loans manually also can key loan applications directly into Loan Advisor Suite,
Higginbotham notes. Automated systems list the documentation consumers need to provide early in the process, so “you don’t have to keep going back to borrowers asking for information,” he says.

Automatically analyzing loan underwriting, appraisal quality and closing documents can improve loan quality, Higginbotham says. Freddie Mac plans to add the ability to electronically validate a borrower’s assets and income to Loan Advisor Suite.

How a community bank views its mortgage business is more important than its size when determining whether it should deploy an automated underwriting system, contends Beth Millstein, Fannie Mae’s director of business development. Community banks may start by selling mortgages on a correspondent basis to a larger financial institution. These “loan aggregators” then resell those home loans to Fannie or Freddie.

“This could help someone on the borderline to get approved.”
—Mindy Armstrong, fannie mae

However, aggregators may impose “underwriting overlays” on their correspondent business. These put more-restrictive guidelines on lenders—such as requiring a higher credit score than Freddie or Fannie do. Lenders can avoid overlays by getting approved to sell directly to the GSEs.
Millstein believes any community bank that’s currently originating for its portfolio or selling mortgages to a regional Federal Home Loan Bank won’t find working with Fannie Mae to be a difficult stretch. Local lenders may need to familiarize themselves with loan standards used in the secondary market, however. Yet Fannie provides help by sharing industry best practices for banks moving into loan sales.


Freddie Mac’s and Fannie Mae’s underwriting software have new capabilities worth discovering.

Making the jump
Mortgage lenders have been able to use the automated underwriting systems free of charge since summer 2015, and that policy continues. Banks can access Desktop Underwriter and Collateral Underwriter without cost, and with no obligation to sell those loans, Millstein points out.

Collateral Underwriter gives lenders “more confidence in property valuations” with its automated appraisal reviews, Millstein says. She notes that the tool has proven to be “very effective” in rural areas where comparable sales may be miles away from the financed property.

“We don’t make lenders jump off the deep end by themselves.”
—Beth Millstein, fannie mae

Selling into the secondary markets gives lenders “access to the lowest cost of credit,” adds Millstein, which will keep them competitive in local markets. Or community banks can keep those mortgages in their portfolio knowing they can be sold quickly at a fair-market price if liquidity is needed in the future.

Parts of the Whole The components of Freddie Mac’s integrated mortgage lending software system, called Loan Advisor Suite
Parts of the Whole
The components of Freddie Mac’s integrated mortgage lending software system, called Loan Advisor Suite

Numerous options are available for selling loan production. Lenders can begin by selling on a loan-by-loan basis. Mortgage servicing rights can be sold as well, or handled by contracting with a subservicer.

Lenders who are approved seller-servicers also can purchase mortgage-backed securities as investments directly from Fannie Mae, or swap loans for them, Millstein explains.

“We don’t make lenders jump off the deep end by themselves,” she comments. “We stay with them through the whole process” of becoming a seller-servicer.

Howard Schneider is a financial writer in California.

More Information

Community banks can find more information about Freddie Mac’s and Fannie Mae’s automation offerings at their websites, and

Both companies have representatives who will answer questions and help banks decide how to take the best advantage of their systems, Loan Advisor Suite and Desktop Underwriter.