GSE Loan Delivery: Interim Analysis and Approach


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This paper assesses the progress of the Uniform Mortgage Data Program (UMDP), which was established by the Government Sponsored Enterprises (GSEs) - Fannie Mae and Freddie Mac - to improve transparency and accountability in loan originations and help fire up the secondary market. The program will phase in three stages by November 2012: the Uniform Appraisal Dataset (UAD), Uniform Loan Delivery Dataset (ULDD), and Uniform Collateral Data Portal (UCDP).

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GSE Loan Delivery: Interim Analysis and Approach

  1. 1. • Cognizant 20-20 InsightsGSE Loan Delivery: Interim Analysisand Approach Executive Summary benefits of the UMDP program, as well as the implementation challenges faced by players While the recent housing crisis can be attributed across the mortgage industry. It concludes with to a number of factors — low interest rates, exotic an approach for deploying business and techno- products, lack of audit controls, inadequate logical improvements that can reduce risk and credit risk analysis, insatiable investor appetite, optimize the entire loan origination process. predatory lending and irresponsible borrowers — one of the key factors was the non-availability UMDP Program Overview of consistent, accurate and detailed origination The GSEs announced the launch of UMDP on May data. This problem has led to inadequate consid- 24, 2010, under the directive of the FHFA. UMDP is eration/evaluation of several of the factors stated aimed at helping organizations implement uniform above. appraisal and loan delivery data standards, which Government Sponsored Enterprises (GSEs), would facilitate data accuracy and integration of Fannie Mae and Freddie Mac, created the Uniform mortgage data across the industry landscape. As Mortgage Data Program (UMDP) at the direction depicted in Figure 1, this program comprises three of the U.S. Federal Housing Finance Agency components. (FHFA). UMDP aims at significantly improving the While the technical requirements and specifica- depth, breadth and quality of data throughout tion for UAD and UCDP are identical, the ULDD the mortgage life cycle to promote transpar- requirements are not consistent for both GSEs ency, accountability, compliance and better risk in the case of conditionally independent2 data management. This white paper discusses the points. UMDP at a Glance Component Objectives Data Elements Uniform Appraisal Improving data quality by having uniform 209 data points.1 Dataset (UAD) standards for capturing appraisal data. Uniform Loan Improving data quality by having uniform Over 600 data points, approximately Delivery Dataset standards for capturing loan delivery data. half to be implemented in Phase l and (ULDD) the rest over time. Uniform Collateral Facilitating electronic submission of UAD includes all the data points Data Portal (UCDP) appraisal data files to the GSEs through the required to complete the appraisal uniform residential appraisal report form. report form. Figure 1 cognizant 20-20 insights | april 2012
  2. 2. A Step in the Right Direction • LOS vendors: Numerous banks have installed these platforms to originate thousands ofUMDP represents an attempt to address the loans per month. LOS vendors will be the keyvarious data issues plaguing the industry. drivers of ULDD implementation as they willSupported by UMDP, the breadth and depth of need to enhance and roll out their productsloan data — delivered on a timely basis through across several banks.a common industry standard — will lead to signifi-cant improvements in transparency for investors, • Originators: These companies have theas well as strengthen risk management capa- ultimate responsibility to be ULDD compliantbilities, lender accountability, secondary market as they will be responsible for submitting loanspricing and reporting/analytics. This initiative in prescribed format to the GSEs.will not only lay out the foundation for futurecontrols, but also be essential in bringing back • GSEs: These organizations will need to enhance several internal systems to incorpo-investors to the secondary market. rate enhanced data into their existing pooling, pricing, trading, investor reporting andTimelines and Impact Analysis analytics systems.The GSEs have laid down specific timelines toimplement the components of UMDP, which • Third-Party Service Providers: Appraisal management companies will need to startstarts with implementation of UAD by September providing data in the required format to origi-1, 2011, to implementing ULDD by November 2012. nators through their existing delivery channelsKey timelines and impact analysis on key players and will need to enhance their delivery channelsis summarized in Figure 2. Key participants to provide adequate data depth and breadthimpacted will be loan origination system (LOS) per UMDP. They will also need to update formsproduct vendors, originators, GSEs, third-party for their vendor network that actually processservice providers, rating agencies, investors and the orders.servicers.ULDD Transition Timeline Sept. 1, 2011 Dec. 1, 2011 March 19, 2012 July 23, 2012 November 2012 UAD ULDD UCDP ULDD ULDD All appraisers must All loans with application Appraisal report must be Loans with an application All loan deliveries on or after complete the appropriate received dates on or after this submitted to the UCDP if: received date on or after this date must include the appraisal forms as date must include the applicable The loan application is December 1, 2011, that are two additional data points required by the UAD. ULDD data points for Phase I. dated on or after delivered to either GSE on or required by the SEC. December 1, 2011, and after July 23, 2012, (previously UCDP The exact date is yet to be For loans with application March 19, 2012) must meet the An appraisal report ULDD Phase I requirements. communicated. received dates on or after this is required. date, the appraisal report form, UCDP if required, must be submitted Doc File ID (ULDD data Doc File ID (ULDD data point to the UCDP prior to delivery, if point Appraisal Identifier) Appraisal Identifier) is the loans are delivered on or is not required at delivery required at delivery on or after March 19, 2012. until July 23, 2012. after July 23, 2012. IMPACT UAD ULDD UCDP ULDD ULDD Originators/LOS Vendors Originators/LOS Vendors Originators/LOS Vendors Originators/LOS Vendors Originators/LOS Vendors Enhance systems and Enhance systems and prepare Enhance systems and Enhance systems and Enhance systems and prepare staff to support staff to support and process prepare staff to make prepare staff to support prepare staff to support and process new UAD data per ULDD. final preparations for and process data per and process data per final compliant forms. Third-party Servicers mandatory delivery of ULDD. ULDD requirements. Third-party Servicers Enhance systems and prepare appraisal forms through Final preparations for the Third-party Servicers Enhance systems/forms staff to support ULDD. the implementation delivery of ULDD Phase I Ensure that they provide and train vendors/staff of the UCDP. loan data. the required data elements GSE on using the new Enhance several internal Ensure users are to lenders required per SEC. configured in UCDP. UCDP appraisal form. systems to move from current Originators/Third-party Servicers data breadth and format to Servicers Enhance systems to process new standards. loans with enhanced data Upload appraisals to the UCDP requirements and investor UCDP, working with Originators/LOS Vendors reporting. vendor if applicable, to Enhance systems and prepare capture and store the Rating Agencies/Investors staff to support and process Appraisal Identifier data Enhance pricing models data per ULDD. point (DocFileID) for (data and logic) to include Third-party Servicers delivery with the ULDD. enhanced factors in price Enhance systems and prepare determination. staff to support ULDD.Figure 2 cognizant 20-20 insights 2
  3. 3. • Rating Agencies/Investors: Both will need to access controls and accountability for each enhance their pricing models in terms of data field. This will be a challenging task given and logic to include enhanced factors in price the fact that detailed analysis of hundreds of determination. screens, scores of roles and hundreds of fields will be required to achieve this along with cor-• Servicers:These companies will need to responding validations. prepare for boarding and managing loans with enhanced data requirements as well as • Training and Change Management: Given enhanced and consistent investor reporting. the number of parties involved and extent of changes required, training the staff to adaptImplementation Challenges new fields will be a difficult habit to break.ULDD implementation across various systems Analyzing the impacts on business processesand stakeholders is not without challenges. The and swiftly aligning them to go in hand with thechallenges include multiple parties and stake- changes might turn out to be another compli-holders with conflicting priorities, extensive cation during the implementation.customizations, multiple installations, trainingand change management, coordination and • Changes to Data Warehouse Infrastructure:embracing a unified view of these changes. Any changes to the source systems will haveSpecific challenges include: a corresponding impact on the DW. Originators should implement the changes to the DW along• Multiple Parties and Stakeholders: Successful with the source systems to avoid inaccuracies and timely implementation of UMDP is in the reports generated and analysis done possible only through seamless coordination with the data in the DW. between various stakeholders — originators, LOS vendors, third-party service providers • Tight Data Dictionary and Edit Checks: The GSEs have published a very tight data and various units within these entities (IT, dictionary for loan delivery with several business, data warehousing (DW), etc.). Given business rules at field level. The XML file will be the different priorities of these stakeholders rejected if the supplied data does not meet the and their business units, this is easier said than specified guidelines. This would lead to extra done. programming effort in terms of building these• Product vs. Client-specific Requirements rules up front into the LOS, as well as checking and Customizations: LOS vendors and origina- prior to loan delivery. Exception reports and tors are struggling with identifying, managing exception analysis and remediation teams may and implementing changes to their disparate be required for an initial period to overcome versions of systems, as considerable custom these challenges. code has been added on top of base products. For some originators, particularly those that Suggested Approach use plain vanilla features, this change might be A solution approach to implement UMDP easier to make and manage, but for those that requirements comprises a unified plan and have customized the platform significantly, governance model across various stakeholders identifying and implementing changes will be and units within them, GSE data dictionary-driven difficult given the limited availability of LOS approach, and a deeper/long-term view of imple- vendors’ professional services teams. Updates mentation. As depicted in Figure 3, the approach to the customized origination products for a would start with the GSE data dictionary, identifi- variety of clients (as mandated by UMDP) are cation of data gaps, and a determination of how a daunting task for product vendors. Simul- to holistically fill these gaps, followed by an imple- taneously, product vendors will need to make mentation plan. Additionally, the implementation updates to their core products to facilitate new approach should be flexible and extensible to implementations in the future. conform to future enhancements with the imple- mentation of an extensible business rule engine• Simple Field Additions Will Not Help; to check and compare each data element against Role-based Access and Accountability Is documents (images/PDFs) and data point source Required: LOS vendors and originators who system information to ensure data accuracy and view this simplistically (i.e., just add the fields) consistency. An effective audit trail should be will not be able to take true advantage of this generated to track the prefunding reviews and opportunity if they do not take into account cognizant 20-20 insights 3
  4. 4. An End-to-End UMDP Implementation Plan Data Gap to Business Identify Data Gaps Function/Role/Screen Mapping Define and Prioritize • GSE data dictionary is the • Map each data gap to business • Sound change management starting point. process/function and role. practices to enhance systems and • Map current data set to • Map each gap to various applications; business process to capture data. GSE data dictionary. start upstream and traverse • Implement through unified • Identify gaps — data/depth. downstream. governance model. • Define business rules for each data element. • Define document, field and system mappings for comparison.Figure 3 Data Sources Master Datachanges to reduce buy-back requests from the Transform Edit Checks ConclusionGSEs/investors (see Figure 3). • Consolidate all data in • Maintain in enterprise UMDP is a data to in the •rightcomparison across bring • Transform step Data direction to single DW for effective data definition andAs with data submission guidelines for various transparency and accountability among various UMDP standards. system and documents. control & distribution control repository. • Check data rules beforeloss (Sources will beprograms on • Transform & mitigation LOS, POS, the servicing side - stakeholders. UMDP not only provides trans- submitting. Lead, CRM etc.). parency and accountability butmanagement the standardize data.Home Affordable Modifications Program (HAMP) • Exception also lays • Up-front implementation • Source of truth across & resolution. foundation for possible restart of the secondaryand of rules inAffordability Foreclosure Alternative Home source apps to the enterprise. • Submit to GSEs. capture the data points(HAFA) — the datarules loan market. Delivering high-quality data to through business dictionary for UMDP is equallytight and could be a cause for concern. These engine. investors in a consistent and timely manner willconstraints should be handled at the LOS appli- allow investors and rating agencies to effectivelycation and data submission/DW stage by building evaluate, rate and manage risk associated withthe rules up front in the application as well as mortgage investments.downstream (prior to submission). Originations While UMDP will require up-front investment fromIT/DW should take guidance from their servicing various participants such as lenders, vendors,counterparts who have already implemented servicers, investors and rating agencies, in thea process very similar to UMDP for various long run all parties will benefit from improved datagovernment programs. As depicted in Figure 4, quality and transparency and business processesthe ideal architecture should comprise data con- enabled by a technology refresh and resultantsolidation and standardization across sources, new business opportunities. This industry-wide Data Gap to Businesstransformation, Data Gaps Identify edit checks and corresponding Function/Role/Screen Mappinglead to a moreand Prioritize efficient, effort will Define transparent,exception management and submission. This consistent and streamlined operations and riskwould GSE data dictionary is the • provide a single source for data definition gap to business • Map each data • Sound change management starting point. process/function and management for all industry participants. Loans role. practices to enhance systems andmanagement (e.g., set to definition • Map each gap to various applications; data repository), • Map current data supported by UMDP will fostercapture data. business process to an environmentaccessGSE datadistribution across the start upstream and traverse and dictionary. enterprise, • Implement through unified downstream. of trust leading governance model. to improved participation in thewhile•taking into — data/depth. UMDP requirements. Identify gaps account the • Define business rules secondary market. for each data element. • Define document, field and system mappings for comparison.UMDP Implementation Data Flow Data Sources Master Data Transform Edit Checks • Consolidate all data in • Maintain in enterprise • Transform data to • Data comparison across single DW for effective data definition and UMDP standards. system and documents. control & distribution control repository. • Check data rules before (Sources will be LOS, POS, • Transform & submitting. Lead, CRM etc.). standardize data. • Exception management • Up-front implementation • Source of truth across & resolution. of rules in source apps to the enterprise. capture the data points • Submit to GSEs. through business rules engine.Figure 4 cognizant 20-20 insights 4
  5. 5. Footnotes1 A “data point” is the term name that must comply with Mortgage Industry Standards Maintenance Orga- nization (MISMO) naming conventions and end with a MISMO class word to indicate the category of data to which the term name belongs.2 GSE-specific data points are required for all loan delivery transactions when a defined business condition exists. These conditions are not consistent for GSE delivery applications.About the AuthorsAshish Shreni is the Consumer Lending Practice Head with Cognizant Business Consulting and hasworked for over 12 years in the banking, brokerage and insurance space on projects spanning businessand IT strategy, business process optimization and complex project execution. He can be reached Bimal is Consulting Manager with Cognizant Business Consulting, and has worked for over 12years with leading banks across project management, business process optimization and consulting. Hecan be reached at CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 137,700 employees as of December 31, 2011, Cognizant is a member ofthe NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: Email: Email:©­­ Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.