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   ARTICLE   |   From Scotsman Guide Residential Edition   |   September 2017

Streamline Your Refi Business

Day 1 Certainty can keep pipelines full and moving swiftly

Illustration by Dennis WunschAlthough refinance business has declined in general over the past year, it still represents a significant portion of the mortgage origination market, particularly during the purchase market’s “off season” — the winter. In May 2017, refinances were just 32 percent of all closed loans, according to data from Ellie Mae.

From October 2016 to January 2017, however, refinances represented almost half of all loans, fluctuating between 46 percent and 47 percent of the market. Although purchase business remains a priority for many mortgage professionals, there are still opportunities to be had in refinances.

Speed is critical when it comes to this market, however. Mortgage originators who want to make the most of their refinance prospects should take a closer look at a new program from Fannie Mae that aims to streamline the mortgage process and may be particularly helpful to originators working to keep their refinance business robust.

The basics

In October 2016, Fannie Mae announced Day 1 Certainty, a mortgage initiative designed to help lenders reduce risk and bring speed and simplicity to the mortgage application process for originators. By December 2016, the various components of the initiative were all operational.

Using Fannie Mae’s underwriting system, Desktop Underwriter (DU), lenders and originators can access income, assets and employment-validation services — and, in theory, get certainty on whether a loan will close on day one. Fannie Mae also is providing freedom from representations and warranties on appraised values with the use of its other system, Collateral Underwriter (CU).

Fannie Mae claims that by using these systems and promoting further digitization of data, lenders and originators will be able to move forward more quickly and with greater assurance in the quality of their loans, promoting stronger risk management and simplicity in the mortgage process.

Although Fannie Mae has previously allowed lenders to utilize third-party reports to validate items like income, employment and assets, in those situations, the lender remained accountable for the reliability of that data. With use of DU, lenders are relieved of the burden of certain representations and warranties once data has been validated.

The DU validation service can work with both correspondent and third-party-originator business models, and the enforcement relief from representations and warranties transfers from the correspondent lender to any purchasing lender. Mortgage originators should note, however, that the DU validation service provided via the Day 1 Certainty program is only available for conventional loans. Nonconforming loans and government loan products from the Federal Housing Administration, U.S. Department of Veterans Affairs and the U.S. Department of Agriculture are not eligible.

The benefits

The Day 1 Certainty program has the potential to be a boon to originators and lenders alike, for both purchase and refinance loans. If it works as promised, it will simplify loan originations by automating previously manual processes with more accurate digital ones, also reducing risk and complexity.

Shortening the origination process can reduce origination costs as well – which is good for borrowers and lenders alike.

One of the greatest potential benefits of the Day 1 Certainty program for originators and borrowers is reduced closing times. Although the days-to-close time frame on conventional loans was as high as 51 this past January, according to Ellie Mae, it was down to just 41 days this past May, and conventional refinances were down to 40 days.

According to Fannie Mae, early adopters of the DU service found that turn times for loans were reduced by four to seven days on average, which could be significant for borrowers. By using digital records and data — instead of collecting paystubs and bank statements — borrowers benefit from less hassle and less time spent amassing stacks of paper. It is important to note, however, that DU validation does not free originators and lenders completely from documentation requirements.

According to Fannie Mae, the system will provide messaging on what documentation is needed in addition to the validation. In some cases, the validation report may be the only documentation necessary. Components not validated by the system may still be used for qualifying purposes, but originators must follow the documentation requirements provided by DU. Components not validated by DU, however, are not eligible for the representations and warranties relief.

In addition to shorter closing times, there also are time-saving opportunities for appraisal issues by using a CU and DU combined, particularly for refinances. According to Fannie Mae, about 20 percent of limited cash-out refinances may be eligible for an appraisal waiver because of the analysis performed by these automated systems.

Although appraisal waivers are not available for all loan submissions, the CU platform offers additional relief for lenders from representations and warranties on property value if the appraisal receives a CU risk score of 2.5 or less.

Validating the loan-application data at the onset allows lenders and originators to verify critical loan components more quickly and easily, decreasing the time needed to close a loan. Shortening the origination process can reduce origination costs as well — which is good for borrowers and lenders alike.

•  •  •

Although the market for mortgage refinances has decreased in recent years, there is still business to be had for originators that know how to best capitalize on the opportunities the market presents. Interest rates on mortgage loans rise and fall, but home values have been steadily increasing during the past several years. According to the National Association of Realtors, the median existing-home price was $252,800 this past May, a 5.8 percent year-over-year increase, and the 63rd straight month of year-over-year gains. These increases mean additional equity for many homeowners, making refinances more attractive.

When looking for loan programs that minimize time to close and improve the mortgage process for both purchase and refinance borrowers, mortgage brokers and originators should con-sider using CU and DU to access Fannie Mae’s Day 1 Certainty. Not only can Day 1 Certainty help drive efficiency for borrowers and greater certainty for lenders, it also helps borrowers who have limited downpayment funds, because options go as low as 3 percent down. By using this and other products that streamline the refinance process, originators can keep their pipeline moving swiftly and surely.


 


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