Lessons Learned: Better Data, Better Decisions, Better Loan Performance
For most in the mortgage business, March 19, 2012 came and went just like any other day. For me, and the teams at Fannie Mae, Freddie Mac, FHFA, and Veros Real Estate Solutions that I had the privilege of working with, it marked the 5-year anniversary of the mandate of the Uniform Collateral Data Portal (UCDP). More specifically, this is the date when Fannie Mae and Freddie Mac mandated that the Uniform Appraisal Dataset (UAD) be a part of the loan delivery process for each GSE. This may not sound like a big deal or cause for celebration, but mandating these new appraisal-related requirements has had a significant impact to the mortgage industry. Not only is that impact felt today, it has laid the groundwork for similar work, attempting to have similar results.
On the 5-year anniversary, I took a moment to both celebrate and reflect. My thoughts immediately went to “Man, we put a lot of effort into this,” but then they oscillated to the impact of what we did, where we are now as an industry, and what this means for the future of housing. We changed the infrastructure for standardizing appraisal data and built the platform for the transmission of that data. Our efforts solved a major issue (valuation) that significantly contributed to the mortgage market crash, set the foundation for modifying the (rep and warrant) GSE business model, and forged the path for other data-related initiatives that will also improve the GSEs’ ability to analyze risk. But, to get to this point, we had to go through some very tough times.
Before the mortgage collapse, times were very good. Everyone in the mortgage industry was making a lot of money and looked the other way as shady practices evolved. Interests rates were low and everyone was looking to build wealth. Homeownership was well over 70% nationally, hitting all-time highs. The subprime market was exploding and feeding the private label securities and derivatives markets. There was huge growth in the no- or low-documentation, negative amortizing, option ARM, and stated-documentation loans. The GSEs had aggressive affordable housing goals, and were losing market share to the Private Label Securities (PLS) market. FHA’s market share was in the low single digits. Cash-out refis were a big part of the market. The credit quality of the borrowers had declined. Loan-to-Value (LTV) programs enabled no down payments and LTVs went up to 100%. Appraisals were overstated, and there was sharp home price appreciation in many areas of the country. In fact, the country had not seen national price depreciation since the Great Depression. Finally, the GSEs relied heavily on the rep and warrant policy for protection. The rep and warrant business model had worked in the past, but was soon to be tested in a stressed market.
Appraisals were a big part of the pre-crash puzzle. Money was easy before the crash; it was easy to buy a house, refi an existing loan, and even take out large sums of money based on the perceived equity in the home. We all know what happens here. Hollywood has even brought the spotlight onto us with blockbusters like “The Big Short” depicting the global financial crisis and inevitable market collapse.
Most people think that the market collapse was based on borrowers getting into homes they couldn’t afford. This is true. However,… [ Read the full article on Mortgage Bankers Association ]
We changed the infrastructure for standardizing appraisal data and built the platform for the transmission of that data. Our efforts solved a major issue (valuation) that significantly contributed to the mortgage market crash, set the foundation for modifying the (rep and warrant) GSE business model, and forged the path for other data-related initiatives that will also improve the GSEs’ ability to analyze risk. — Chuck Rumfola.
Chuck Rumfola is Senior Vice President of Strategic Initiatives with Veros Real Estate Solutions, Santa Ana, Calif. He is responsible for building strategic relationships within the mortgage industry, enabling Veros to create and implement solutions to reduce lender and borrower risk. Before joining Veros, he worked at Fannie Mae for nearly 20 years and most recently served as vice president of single-family strategic initiatives. In his tenure at Fannie Mae, he held positions in single-family business, capital markets and mortgage operations.
Media Coverage Source: Mortgage Bankers Association | Download full article