Three lenders field testing Freddie Macs fledgling automated underwriting system reported sizable decreases in the amount of time needed for loan approval as well as an increase in the number of qualifying applications that might have been previously considered ineligible.

Freddie reported its programs positive progress during the California League of Savings Institutions Western Secondary Mortgage Market Conference in San Francisco July 13, and added that five other mortgage lenders plan to implement the program soon. And if Freddies projected time and money savings prove accurate, many more lenders are likely to follow.

Freddie said the three participating mortgage companiesDirectors Mortgage Loan Corp., of Riverside, Calif.; Monument Mortgage, of Walnut Creek, Calif.; and Mortgage-America, of Birmingham, Ala.experienced a reduction of between 20 days and 30 days in current underwriting processing. Each also said they were consistently able to receive purchase decisions from Freddie within roughly four minutes after the loan was prepared and submitted.

The automated program, which Freddie plans to make available to most of its seller/servicers in early 1995, uses computer technology to help evaluate mortgage loan packages and get approval within minutes, effectively shortening the time-consuming process that may ordinarily take as much as five weeks to just one business day.

It will significantly reduce lenders origination and hedging costs, said Freddie Mac President David Glenn, adding Freddie projected participating lenders could expect an overall reduction in origination costs of between 20% and 50%.

The automated service uses a combination of rule-based and statistical modeling systems that remove the subjectivity from a lending decision, Freddie said.

When a lender sends information from a loan application via computer network, Freddies service applies decision rules to determine eligibility to reach a decision on whether to approve the loan for sale to the corporation.

Those modeling techniques can eliminate or streamline many mortgage process steps being performed, such as certain required documentation and verificationscredit reports, for example. The reliance on strict debt-to-income ratios is another area that can be reduced, Freddie said.

[Automated underwriting] will substantially reduce pipeline fallout and expand homeownership opportunities by identifying and approving many borrowers that might not presently qualify under traditional underwriting methods, Glenn said.

Others agreed. The number of loans that are going to be approved is probably going to increase, said Jim Noack, president of Monument Mortgage. Lenders have more time to work with loan packages not approved, mostly because much of the redundant paperwork requirements are eliminated through the automated system. The [automated system models] are not perfect, Noack said. But [the system] will allow underwriters to better analyze these loans that require more attention.

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