Fannie Mae is jumping into the subprime arena by offering access to automated underwriting for nonconforming loans.
Fannie Mae's Desktop Originator and Desktop Underwriter systems will be used in the pilot program.
Residential Funding Corp., Minneapolis, a unit of GMAC Mortgage Corp., will provide the underwriting capability with its AssetWise underwriting and pricing system, and will buy approved loans for private securitization.
CrossLand Mortgage Corp. has already begun to originate loans in the pilot, and American Home Funding will participate starting next month.
The program is a response to Freddie Mac, Fannie's rival, which provides automated underwriting of nonconforming loans through its own Loan Prospector program.
That system uses an underwriting model developed by Freddie and Standard & Poor's. A variety of wholesalers, including RFC, stand ready to buy loans that originators flow through Loan Prospector.
William Kelvie, Fannie's executive vice president and chief information officer, outlined the program here Monday at the annual meeting of the Mortgage Bankers Association. He said it was part of a package of enhancements to Desktop Underwriting and Desktop Originator.
Access to the automated underwriting capabilities is now available through the network and software available from the mortgage division of Alltel Information Services.
"This enables Alltel's clients to submit their loans to Fannie Mae for automated underwriting decisions and, in minutes, to seamlessly receive comprehensive feedback regarding the loans," according to Martin Colburn, Fannie's vice president for customer applications and technology.
Fannie also said that, as of Monday, decisions on all types of loans would be available electronically in about two minutes, and that the entire process from inputting application data to the decision would take just a half hour. A full decision, including property appraisal, would take as little as 48 hours, it said.
Fannie said its system could now handle all types of loans that its customers offer: conventional loans, government-backed loans, subprime loans, and those originated through the Community Home Buyers Program.
However, at a separate briefing, Angelo Mozilo, vice chairman of Countrywide Credit Industries, Pasadena, Calif., sounded a sour note about the credit scoring technology, the backbone of automated underwriting.
"Credit scores introduce a new bias into underwriting," he said. A human underwriter who reviews a loan application with a low credit score will be strongly motivated to reject the loan, however good it looks, rather than take the personal risk involved in overriding the low score.