The Federal National Mortgage Association and Merrill Lynch Credit Corp. are launching a pilot program in October that will allow lenders to access automated underwriting and appraisals for jumbo loans - those above Fannie Mae's maximum of $207,000. The Merrill Lynch & Co. unit will then buy approved loans.
Through Desktop Underwriter and MortgageLinks, two components of Fannie Mae's Mornet network, lenders will be able to receive credit decisions on applications in 30 minutes or less. These jumbos can than be sold to Merrill Lynch Credit.
Lender's Service Inc., a subsidiary of Merrill Lynch Credit, will provide lenders with electronic appraisals and other services such as title insurance.
Fannie Mae's rival, the Federal Home Loan Mortgage Corp., already has an automated underwriting network for jumbos that uses Standard & Poor's criteria.
But the Fannie Mae-Merrill Lynch partnership will evaluate only jumbo loans. Freddie Mac's system also evaluates subprime loans.
Michael Williams, Fannie Mae's senior vice president for customer applications and technology integration, said that while the agency is not interested in buying or securitizing subprime loans, it recognizes lender demand for quicker and easier underwriting of all types of loans. He says the system may at some point be expanded to provide lenders with an underwriting tool for subprime loans.
However, it's highly unlikely that Merrill Lynch Credit would take part in such a venture.
"We do not intend to be in the B and C market," said Kevin O'Hanlon, Merrill Lynch Credit's president and chief operating officer. "Our expertise is in A quality jumbo paper."
For Merrill Lynch Credit, the joint venture in jumbos is an opportunity to expand its mortgage business.
Mr. O'Hanlon said this partnership represents the unit's first major push to gain new clients outside of its existing customer base.
He added that the program would be launched with only 20 participating lenders, and that expansion would depend on how much volume is originated.