Bright Lines

Hagel’s bill, co-sponsored by Senators Elizabeth Dole (R-N.C.) and John Sununu (R-N.H.), includes a proposal to `clarify the mission’ of the GSEs by defining their permissible activities. The Hagel Bill makes direct or indirect loan origination impermissible by the GSEs. It does so by defining primary and secondary mortgage activities. GSEs may engage only in secondary activities. Primary mortgage activities include those that involve direct contact with the borrower before or after the loan closes. Secondary activities are those functions that take place only after a loan is closed and funded; underwriting is expressly excluded. There’s the `bright line’. GSEs shouldn’t originate loans. Their charter expressly prohibits it. However, if prohibited from providing tools – technology – that streamlines the mortgage approval process for the primary market, then homebuyers and small- and medium-sized lenders lose. Secondary market activities that exclude underwriting means no more Desktop UnderwriterT or Loan Prospector T. How will credit unions underwrite loans? There’s always the old-fashion way: IBM Selectrics anyone? Think of it this way: all lenders – small and large — use the same tools today, so the field is level. The Hagel Bill changes this: it prohibits Fannie Mae and Freddie Mac from providing the systems on which our industry depends. While losing access to systems our mortgage programs are built on is bad, it gets worse. Desktop UnderwriterT and LoanProspectorT do more than provide a recommended loan decision: they establish what the secondary market will buy. Without these systems, how will lenders know what to originate and how to originate it?