BLOG VIEW: In February 2017, Fannie Mae implemented a set of changes to investor reporting to satisfy new regulations set out by the Federal Housing Finance Agency (FHFA). The goal was to increase servicers’ efficiency and streamline the reporting process for investors as well as prepare for the Single Security Initiative (SSI) which is a joint initiative of Fannie Mae and Freddie Mac under the direction of FHFA. The initiative is to develop a common mortgage-backed security that will be issued by Fannie Mae and Freddie Mac.
Now that servicers have had time to acclimate to Fannie Mae’s reporting changes, it’s Freddie Mac’s turn. The GSE has been working on its own Investor Reporting Change Initiative (IRCI), setting the official implementation date for May 1, 2019. While the changes are still a way off, the initiative has been long in the making, with Freddie Mac beginning work on Phase 1 before Fannie Mae’s changes became effective last year.
Of course, any adjustment to regulatory standards will impact servicers’ operations, requiring them to modify their processes and technologies. So, what exactly do servicers need to know to ensure they’re maintaining compliance with the new Freddie Mac IRCI?
To pinpoint how the new investor reporting changes may impact servicing operations, servicers must first understand what exactly those changes entail.
While there are many changes laid out in the new regulations, some of the most significant include the following:
- The establishment of a standard industry investor reporting cycle that begins on the first day of the month and a standard remittance due date for both principal and interest payments on all loans;
- The ability for servicers to report and edit loan-level criteria on a daily basis; and
- The automatic draft of remittance funds from the servicer on the remittance due date.
The good news is that these changes are very similar to those implemented by servicers in accordance with Fannie Mae’s Changes to Investor Reporting. However, Freddie Mac’s changes do differ in a few ways. Freddie Mac built on Fannie Mae’s valuable groundwork to make it even easier for servicers who report to both GSE’s to accommodate the new Freddie Mac changes.
Freddie Mac’s training is structured to provide a number of training meetings to ensure Freddie Mac servicers are as prepared as possible to meet the new changes. These meetings, conducted between a software vendor or service bureau, their customers and a dedicated Freddie Mac representative, provide servicers with updates and the opportunity to ask any questions they may have related to the IRCI.
Freddie Mac has developed its IRCI with the overall strategic vision of converting Single-Family investor reporting requirements to an industry standard. By doing so, reporting will be faster and easier for servicers and more accurate and streamlined for Freddie Mac. The IRCI will also support the joint Single Security Initiative with Fannie Mae.
For example, with the ability to edit and report loan criteria on a daily basis, servicers can consistently ensure their reporting is as up-to-date and accurate as possible and better avoid mistakes. Loan quality is further bolstered by the fact that the submission of loan data is now reduced to a single source. Since reporting is streamlined and centralized, servicers will also be able to receive investor feedback more quickly.
Subsequently, all these benefits will be passed on to Freddie Mac. With loan submission on a standardized schedule and guidelines in place to promote accuracy from the very beginning, Freddie Mac will be able to review and accept loans much more quickly and ensure they meet the highest quality.
Once servicers have a strong grasp of the upcoming changes, they’ll need to begin building in the infrastructure to accommodate these changes before the May 2019 cut over date. Fannie Mae Servicers who have already been through a similar process will likely have an easier transition to meet Freddie Mac’s IRCI.
The servicer’s technology vendor can be a helpful ally in preparing the servicer for these changes. Servicers should start by contacting their current vendors to see where the vendor is in the process of updating its software to reflect the changes and when and where training meetings with the vendor’s Freddie Mac representative will take place.
The importance of attending the training meetings cannot be emphasized enough. These meetings provide servicers with the opportunity to address any questions specific to their businesses and learn important information regarding the changes straight from the source. With guidance from both their vendors and Freddie Mac itself, servicers can be well prepared to tackle the changes head-on when they take effect.
Susan Graham is president and chief operating officer of Financial Industry Computer Systems Inc. (FICS), a provider of mortgage loan origination, residential mortgage loan servicing, and commercial loan servicing software.