Fannie Mae and Freddie Mac are underutilizing data from their appraisal data portal and taking unnecessary risks, according to a new report that calls for more oversight from their regulator.
The Federal Housing Finance Agency directed the two secondary lenders in 2010 to improve single-family residential loan quality and risk management.
One of the ways this was to be done was through the development of a uniform collateral data portal. Appraiser and appraisal report information is collected through the UCDP prior to loans being presented for purchase.
Implementation of the UCDP, which was required for all single-family appraisal as of March 2012, was called a “significant undertaking” given the 6 million loans for $1.3 trillion purchased and guaranteed during just 2012 by Fannie and Freddie, according to a report from FHFA’s Office of Inspector General, FHFA’s Oversight of the Enterprises’ Use of Appraisal Data Before They Buy Single-Family Mortgages.
Sellers are notified if appraisals don’t meet the requirements at Fannie and Freddie.
“By using the portal, the enterprises are striving to improve data quality, ensure compliance with their loan eligibility guidelines, enhance loan reviews, and lower the number of loans that must be bought back by sellers (i.e., repurchased) for not meeting their standards,” the report said.
The OIG noted that the UCDP process was a significant departure from how appraisal information had previously been processed.
Although the GSEs have progressed in establishing the portal and collecting data, more needs to be done to minimize risk — and FHFA can increase its oversight to ensure UCDP data is put to better use prior to loan purchases and collateral risk is reduced, according to the OIG.
The report cited 56,000 loans for $13 billion that were purchased between January and June of last year even though the portal identified potential violations of GSE appraisal policies.
Another 29,000 acquired loans for $6.7 billion either had no property value or had a questionable value.
Fannie and Freddie reportedly set up automatic overrides that enabled sellers to disregard the problems.
In addition, overrides were established that enabled appraisals from suspended appraisers to be accepted on 23 loans for $3.4 million.
“The enterprises established the messages as automatic overrides for various reasons, to include their concern that they needed more time to fine tune the portal messages before requiring lenders to address the messages,” the OIG said. “Both enterprises also expressed concern that they did not want to burden lenders with having to respond to messages. Further, as of November 2013, the enterprises have had an extensive (nearly four year) development, testing, and implementation phase to reach the level of readiness such that the enterprises should be able to require lenders to respond to warning messages.”
The OIG made 14 recommendations to help the GSEs use appraisal data to improve loan quality and reduce risk. The recommendations were geared towards improving FHFA oversight of UCDP utilization.
The OIG is calling for the GSEs to require that key warning messages to be resolved before the loans are bought.
FHFA responded that it agreed with the OIG’s recommendations and said it would work on resolving the issues. A status report will be provided by the regulator by Jan. 31, 2015.
