Fannie and Freddie to track loan performance of originator and the appraiser.

It was announced today that beginning Jan. 1, 2010 Freddie Mac and Fannie Mae will be required to obtain loan-level identifiers for the loan originator, loan origination company, field appraiser and supervisory appraiser. The purpose of the requirement is to prevent fraud and predatory lending, to ensure mortgages owned and guaranteed by those Enterprises are originated by individuals who have complied with applicable licensing and education requirements under the S.A.F.E. Mortgage Licensing Act. In addition, they will use the data collected to identify, measure, monitor and control risks associated with originators’ and appraisers’ performance, negligence and fraud. Hat tip John Long and Gordy. 

Here is the PDF from the Federal Housing Finance Agency, Fannie and Freddie’s new regulator.

“This represents a major industry change. Requiring identifiers allows the Enterprises to identify loan originators and appraisers at the loan-level, and to monitor performance and trends of their loans,

30 thoughts on “Fannie and Freddie to track loan performance of originator and the appraiser.

  1. About time… all the need to do next is have it in a public database so people can look up how many loans an LO originates and closes and the other applicable stats – purchases vs refis, state licensing, education levels, completed training, closed volume, reprimands, etc.

  2. This falls under the category of “don’t they do that now?!” (like the recent stories about how “checklists” are the latest modern medical miracle).

    Rhonda, I’m with you, I would LOVE to see that database be made public as well.

    Thanks for the post Jillayne!

  3. I think this will mean more for loan originators than appraisers.

    An appraiser could over-appraise by 10% consistently, and not have any properties go into foreclosure if the loan originators are conservative (or the appraiser is just lucky). Conversely, an appraiser could be spot on for each and every appraisal, and have a high foreclosure rate if the loan originators are pushing the limits (or exceeding them).

    Also, I’m not really sure what you do with the appraisal information. If a loan goes bad the critical value is what it’s worth at that point in time, not back when the loan was made. And what’s actually recovered on the property will depend on how good the bank is managing its problem loans–and the answer to that is poorly for most banks. Neither the appraiser or loan originator should be dinged for the incompetence of the banks.

    On the other hand, if you see a loan originator with a lot of problem loans, you could in theory go back and see if the information provided on the loan application was incorrect. That seemingly would be a lot of work, and absent a criminal prosecution I don’t see it happening that often.

  4. Todd wrote: “A pubic database would be great.”

    That’s even worse than a public database! 😉

    What advantage does everyone see in this being public. I don’t see any, and only see a disadvantage (shopping for questionable loan originators and appraisers).

  5. Hi Kary,

    A pubic database would be so much more entertaining. Talk about transparency and “full disclosure.”

    Here’s a story that may help. I was contacted by a refinancing homeowner recently. She lived in Texas as was refinancing a second home in another state. She found the same loan originator who helped her out the first time except the initial disclosure paperwork seemed “funny” and she found me here on RCG and asked me to take a look. Turns out the loan originator was no longer licensed to originate in the state where the property was located and was placing a second loan originator between himself and the borrower, so the borrower was paying a DOUBLE origination fee. Further, there were many junk fees that had been increased over and above the typical costs associated with those fees.

    With a public database, this homeowner could have found out that the first LO was not licensed to originate in the state where she needed help and could have avoided wasting valuable time (while rates are low) messing around with these two clowns. In addition, the two guys who were colluding with each other could have been turned in to the National system which could keep a record of consumer complaints.

    Interestingly, this LO is still advertising his services on Zillow. I sent an email to David G and have not heard back. Maybe I’ll try him again.

  6. Okay, yes, good point. Thanks The databases of who’s licensed does already exist…..for loan originators who are licensed under a broker. For a long time Rhonda has brought to our attention that a no-good LO could move from a broker to a consumer loan company and not face the licensing issue.

    The National database coming during 2009 and 2010 will contain a list of ALL loan originators no matter where they work:
    Broker, banker, consumer finance company, or credit union.

    Tracking their performance will help managers make decisions about who to keep, who to let go, who not to hire, who needs remedial training, who is committing fraud.

    Right now I’d love to know the name and some other identifier (soc number? LO number?) of every single LO in the state of Florida, the mortgage fraud heaquarters of the world.

  7. Kary…you are a seriously funny dude!!!

    Only you would think of crooked borrowers seeking out crooked loan originators…wickedly brilliant!

    It is about time that tracking of loan originators performance happened, but it was not possible until the national licensing was enacted.

    Despite complaints about some misguided federal and state legislation, I have to say that National Licensing was entirely worthwhile (and if I am not mistaken, endorsed by NAMB).

    I ran a DU (an automated underwriting program that is required in the process) yesterday, and I noticed a new feature.

    It recognized that the appraised value had been changed from the first pass (as the first pass was with estimated value, and the 2nd was with appraised value).

    It also offered an opinion whether the appraised value was excessive (it was not).

    New safeguards are showing up all over the place!

  8. Roger wrote: “Kary…you are a seriously funny dude!!! Only you would think of crooked borrowers seeking out crooked loan originators…wickedly brilliant!”

    I don’t think that is really that far-fetched. You sort of see it in the attorney world where certain types of clients gravitate towards certain attorneys. Imagine how much easier their life would be if there were a public database to help unethical clients find unethical attorneys! (And the WSBA listings don’t count because they’re too ineffective dealing with ethics.).

    I just don’t see the purpose of making any such statistics public.

  9. On the appraisal issue, I was just looking (in records, not physically) at a property that was bought new at the beginning of 2006 for about $550,000 (the price possibly included apparently a lot of upgrades, because the list price was lower). By the end of 2006 they owed about $750,000, which included a second to BoA for $300,000.

    Do you really even need an appraiser to tell you that’s not a good idea? Would an appraisal make you feel comfortable making such a loan?

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