SAN DIEGO - In a bid to boost the use of its automated underwriting system, Fannie Mae announced that loans approved by the system would be made more quickly and with fewer documents.
For the lowest-risk loans, a borrower need provide as little as a recent pay stub and bank statement with the application to obtain a mortgage, the agency's vice chairman, Frank Raines, announced at the annual Mortgage Bankers Association convention here.
And even on the most difficult mortgages, lenders may need only a pay stub, two bank statements, and the most recent W-2 form to make the loan, Mr. Raines said.
He added that Fannie Mae, formally known as the Federal National Mortgage Association, had streamlined its appraisal process so that some loans will require only a drive-by appraisal. Fannie Mae will use information about previous sales of the property, as well as house price trends in the area, to supplement the drive-by.
At the heart of these changes is a new, more powerful underwriting system. Like its competitor, the Federal Home Loan Mortgage Corp., Fannie Mae will use credit scoring to assess the credit history of a potential borrower. In addition, the system will consider other factors such as how long borrowers have held their jobs, their debt ratio, and the loan-to- value ratio.
Meanwhile, Fannie Mae has teamed up with PMI Mortgage Insurance Co. to offer the insurers Federal Housing Administration and Veterans Administration underwriting models. And Mr. Raines said that if lenders demanded, Fannie Mae would also offer them the capacity to approve subprime loans through its underwriting system. Freddie Mac has recently teamed up with Standard & Poor's Corp. to underwrite so-called B and C loans.
Mr. Raines acknowledged that getting lenders to use the system is an uphill task. But, he added, "Fannie Mae has decided that this is the way we want to see business done with us."
Allowing some borrowers to present fewer documents than others inevitably recalls the industry's experience with so-called low-doc loans. Citicorp's mortgage division sustained huge losses on such loans in the Northeast amid a recession and falling home prices in the 1980s.
But Mr. Raines said Fannie Mae's approach was different from past experiments. Instead of saying that loans with a certain down payment would require no documentation, he said, Fannie Mae is saying that documents should be tailored to each customer's profile.