...system (AUS) that significantly improved the underwriting process (McDonald et al. 1997). DU and other automated underwriting systems have created enormous efficiencies in the mortgage origination process, and most lenders now evaluate conforming mortgage applications using such systems. AUSs have expanded the number of loans that lenders can make by significantly reducing the time and cost of originating a loan and allowing lenders to tailor loan terms based on an individual borrower's risk profile.

The Internet and other technology advances make it a necessity that mortgage operations run efficiently and smoothly. The Internet era is changing the expectations of customers across all financial services including the mortgage industry (Pafenberg 2004). Consumers want personalized services and solutions for their individual financial situation, not off-the-shelf, one-size-fits-all financial products. Mortgage lenders are required to satisfy consumer expectations while still adapting a technology infrastructure that has been primarily designed to process transactions and to meet the needs of investors. The Internet provides the perfect communications conduit for information, decisions, transactions, and procedures.

Building on the success of AUSs such as DU. lenders have started looking at ways to extend the efficiencies of technology to other parts of the mortgage process. Fannie Mae developed Custom DU as a comprehensive system that allows lenders to create and publish their own customized underwriting rules, investor variances, and individual loan product messages. Custom DU provides lenders with the ability to leverage the power of DU for their other product lines, gaining operating efficiencies that give them more control of their pipelines. Custom DU enhances the process by allowing additional rules that lenders can apply to their mortgage production. An example is portfolio products. Custom DU allows lenders to build proprietary underwriting rules for their portfolio products and minimize manual intervention required to underwrite the loan. This enhanced benefit also applies to different products and different channels as explained in the following sections.

Custom DU also allows lenders to customize transaction output, the underwriting findings report (see the sample underwriting findings report sidebar). The findings report includes data supporting the underwriting decision from the system in the form of customized, transaction-specific messages and underwriting calculations. The lender can choose to leverage existing DU messages or develop proprietary messages and conditions.

Business Problem Description

Fannie Mae purchases residential home loans in the secondary market and either retains them for its own portfolio or pools them together as mortgage-backed securities (MBSs) for sale to investors with a guarantee of timely payment of principal and interest. More than 2650 lending institutions--including mortgage companies, thrifts, banks, and credit unions--are approved to do business with Fannie Mae in the secondary mortgage market. Fannie Mae's DU is used to determine whether a loan complies with Fannie Mae underwriting guidelines. Fannie Mae purchases only conforming loans whose amounts are below a specified maximum loan limit. In addition to the conforming loans, lenders originate loans that are either too large to be eligible for purchase by Fanhie Mae or may not be eligible for sale to Fannie Mae. While lenders are able to take advantage of DU for some of their mortgage products, they still have to address a couple of challenges: first, lenders need to underwrite loans that are not sold to Fannie Mae, including the loans they hold in their own portfolios or sell directly to other investors, and second, many lenders want to serve borrowers whose needs exceed conforming guidelines.

To address these issues, lenders had to put in place different business processes for conforming and nonconforming loans. It also meant that lenders could not replace some of their manual processes entirely. Custom DU was developed as a tool to address these problems and address the business and technical objectives that are discussed next.

Business Objectives

Custom DU addresses a number of business objectives. First, it creates a single process for all loans. Lenders prefer to underwrite all of their business with one automated underwriting system that they can manage. It is ideal to have a system that allows them to build their own customized rule sets based on their risk factors and operational challenges. These rule sets are typically managed and maintained by business users. Custom DU helps to support further their underwriting needs.

It builds on their current investment and automated underwriting process and expands it to provide consistent loan recommendations and loan eligibility screening for all the products they originate. Custom DU provides seamless integration by leveraging the underwriting transaction, the loan file, and key components of the Desktop Underwriter recommendation.

Second, Custom DU originates more loans that meet investor requirements. Custom DU allows lenders to manage eligibility criteria for various investors without manual workarounds. Custom DU also provides a centralized way to change rules, resulting in consistent communication to all personnel.

Third, it reduces operational costs and increases efficiencies. By streamlining the entire loan origination and closing process, lenders can achieve greater efficiencies and potentially pass savings to customers. Fewer mistakes and less redundant...

NOTE: All illustrations and photos have been removed from this article.



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