Freddie Mac issued a new bulletin to lenders dated July 10, 2009 to remind lenders about the underwriting quality expected in mortgage files . Since some 85% or more of all mortgages are sold to Fannie Mae or Freddie Mac, these quality standards will be adopted by all lenders who sell loans in the Secondary Market. According to the Freddie Mac lender bulletin, they are still finding errors on loan files. Common mistakes made by lenders include the calculation of qualifying income, asset verification, appraisal quality, and misrepresentation of occupancy. Unless these things are accurate and documented to Freddie Mac's standards the chance of loan default increases.
Hard to believe that the Agency still needs to remind lenders that these things are necessary to close a loan after all the industry has been thru over the last two years. Since 2007, the industry has been focusing on underwriting quality and data accuracy, as the reporting of loan level detail is critical to transparency and accuracy of Mortgage Backed Securities (MBS) marketed to fixed income investors.
Appraisal quality was also addressed in the bulletin, and a discussion about the Home Valuation Code of Conduct (HVCC). According to Freddie Mac. appraisers "must be familiar with the local market" in which properties they are valuing are located, choose "appropriate comparable sales," and certify them as the homes "most similar" to the property being appraised. Freddie Mac also addressed the appraiser's selection of comparable sales used to determine market value and the use of REO properties. There is a big emphasis on the use of Automated Valuation Models (AVM) to support the first appraiser's opinion of market value.
This is pretty dry reading for those outside of the housing finance industry, but might provide insight to anyone in the process of buying a home and wondering why loans are taking 30 or more days to close. If you are an appraiser, please read the lender bulletin as compliance with Freddie Mac and Fannie Mae appraisal quality standards are critical to your lender relationship.
Conforming Conventional 30Yr Fixed 5.5%
Conforming Conventional 15Yr Fixed 4.75%
Conforming Conventional 5/1 IO ARM 4.5%
FHA 30Yr Fixed 5.5%
* Above Conventional rate quotes are as of 7/14/09 on a Conventional $165,000 loan amount, primary residence at 80% loan to value, with a 720 FICO score. APR includes $1,200 in lender fees and 980 in title charges (title charges may vary). FHA Quote assumes a $125,000 loan amount and a 680 FICO score, and a 96.5% LTV. Documentation of income and assets required. No origination or discount points.