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Your Mortgage : 5-Day Mortgages, Lower Fees on Horizon

July 24, 1994|KENNETH R. HARNEY | SPECIAL TO THE TIMES

WASHINGTON — Attention home buyers and refinancers who think the 30 to 60 days needed to fund a typical mortgage is much too long: Get ready for the five-day mortgage.

Or lickety-split two-day funding, from start to finish, if you really need the money fast to buy the house you want.

Get ready, too, for tangibly lower settlement fees along with the speed: Appraisal charges slashed from $400 to $30. Title search and insurance costs cut by 50%. Credit report fees down by 60% or more.

This is no midsummer dream. It's already a reality at test locations around the country, and should be available nationwide through participating mortgage lenders within months. Here's what's happening:

A team of computer technology experts, statisticians and underwriters at the Federal Home Loan Mortgage Corp. (Freddie Mac) has been working for years on alternative methods of streamlining the entire mortgage process.

The concept Freddie Mac has finally come up with allows local mortgage loan officers with laptop computers--sitting at your home or your real estate agent's office--to transmit your basic application data to Freddie Mac and obtain a "yes" or "no" funding decision within two to four minutes. During that brief interval, an electronic underwriting system:

--Accesses your merged credit files from the major data repositories like TRW, Equifax and Trans Union.

--Screens your risk characteristics as a potential borrower, using sophisticated credit-score and underwriting modeling techniques.

--Accesses appraisal data on the property you want to buy or refinance.

--Obtains mortgage insurance approval on your loan, if the loan-to-value ratio exceeds 80%.

The system is designed to screen out conflicting--but ultimately irrelevant--information on your credit reports or other application data, according to Peter Maselli, Freddie Mac's vice president for automated underwriting.

Say, for example, that one of your files indicated you had been late on your Sears department store charge account. Traditional manual underwriting standards might stall the application process until this derogatory information was cleared up. The new system, by contrast, factors the data into its statistical model and decides whether the information is significant enough to affect a mortgage loan underwriting decision.

In this case, the model--based on computer analyses of "tens of thousands" of detailed borrower payment histories on mortgages owned by Freddie Mac, according to Maselli--would dismiss the data as irrelevant and flash a "yes."

The president of a mortgage banking firm that's been participating in field tests of the system describes himself as "ecstatic" about automated underwriting's potential. James Noack of Monument Mortgage Co. of Walnut Creek, Calif., says that once it becomes available nationwide, it will be recognized "as profoundly important as the introduction of the amortizing mortgage" during the Depression years of the 1930s. (Amortization schedules of principal and interest payments allowed lenders to extend mortgage terms for as long as 30 years--instead of the five-year, balloon-payment terms that had been standard up until then.)

Noack's firm has underwritten about 500 mortgages using the new system since April. In 40% of the applications from borrowers, he said, Monument got a clear go-ahead signal to fund within minutes of transmission. In another 25% of the applications, the system came back with additional questions for the applicants--typically related to income or employment stability--that were resolved within 24 hours.

In about 35% of the applications, the automated underwriting system turned up significant enough problems that the preliminary signal flashed was a "no." These were often related to credit scores or lack of sufficient credit on the applicant's part. Some of the problems were resolved later, but other applications were rejected for funding. Electronic underwriting doesn't mean everybody qualifies for a loan, Noack emphasized. "It cuts the paper and time and costs," he says. It doesn't transform sub-par credit risks into good ones.

Using Freddie Mac's new system, Noack has done five- and six-day fundings from application to settlement, and has completed two 48-hour transactions to save home sales where other financing fell through. On top of that, he says, he's been able to pass along savings on electronic credit checks ($20 for merged in-file checks versus $45 for traditional mortgage credit reports), electronic real estate valuations ($30 versus $400-$500 traditional fee), and a 50% reduction on title search and insurance fees.

Electronic appraisal data-checks use several on-line sources in combination: Local property tax assessments, proprietary sale and resale records, plus Freddie Mac's own repeat-sale home price indexes for the market in which the property is located. Physical inspections of the home being financed--entailing at least a "drive-by"--are required before any loan is actually closed.

Where's this all headed? To a lender near you later this year or in early 1995, says Freddie Mac's Maselli. Mortgage bankers and brokers who plug into underwriting cyberspace routinely will be able to deliver your mortgage in five working days, he promises.

Distributed by the Washington Post Writers Group .

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