In February 2017, Fannie Mae implemented changes to investor reporting requirements in accordance with new regulations set out by the Federal Housing Finance Agency (FHFA). FHFA’s goal was to increase efficiency for servicers and streamline the reporting process for investors, as well as prepare for the Single Security Initiative (SSI), which is a joint venture between Fannie Mae and Freddie Mac under the direction of FHFA. This initiative aims to develop a common mortgage-backed security to be issued by Fannie Mae and Freddie Mac.
Now that mortgage servicers have had the opportunity to adequately acclimate to Fannie Mae’s reporting changes, it’s time to prepare for Freddie Mac’s changes. The GSE has been developing its own Investor Reporting Change Initiative (IRCI) with an implementation date of May 2019. While these changes may still be a way off, the initiative has been in the making for quite some time now, with Freddie Mac beginning work on Phase 1 before Fannie Mae’s changes went into effect early last year.
Any changes to regulatory standards will have a direct impact on servicers’ operations, requiring modifications to their processes and technologies. So, what do servicers need to know and do to comply with the new Freddie Mac IRCI?
While there are many updates referenced in the new regulations, some of the most significant changes include:
>>The implementation of a standardized industry investor reporting cycle beginning on the first day of the month, as well as a standardized remittance due date for both principal and interest payments across all loans;
>>The ability for servicers to report and adjust loan-level criteria on a daily basis; and
>>The automatic draft of remittance funds from the servicer on the specified remittance due date
Fortunately for today’s servicers, these changes are relatively similar to Fannie Mae’s Changes to Investor Reporting. While there are some similarities, Freddie Mac’s changes also differ in a few ways. Freddie Mac leveraged Fannie Mae’s valuable groundwork as a jumping off point to make it even simpler for servicers who report to both GSE’s to manage the new Freddie Mac changes.
In preparation for the May 2019 go-live date, Freddie Mac has designed numerous training webinars, testing scenarios and documentation to help prepare Freddie Mac servicers for the transition. Training meetings—conducted between a software vendor or service bureau, their customers and a dedicated Freddie Mac representative—also provide servicers with important updates and the opportunity to ask specific questions about the IRCI.
Freddie Mac has developed its IRCI with the overarching goal of converting Single-Family investor reporting requirements to an industry standard. As a result, reporting will be both faster and easier for servicers and more accurate and streamlined for Freddie Mac. In addition, the IRCI will also support the joint Single Security Initiative with Fannie Mae. With the new ability to edit and report loan criteria on a daily basis, servicers can be more up-to-date and precise in their reporting, reducing potential errors. With the submission of loan data reduced to a single source, loan quality will be further bolstered. Since reporting is streamlined and centralized, servicers will also be able to gather investor feedback much more quickly than before.
Freddie Mac will also benefit from streamlined reporting. With loan submission on a fully standardized schedule and guidelines in place to support accuracy from the very beginning, Freddie Mac will be able to evaluate and accept loans much faster and ensure they meet the highest quality standards.
Training Sessions are Essential
Servicers need to begin carving out the infrastructure to accommodate these changes before the May 2019 cut-over date. For Fannie Mae servicers who have already undergone a similar process, the transition to Freddie Mac’s IRCI will likely be much easier.
Leading up to the 2019 deadline, servicers should view their mortgage software vendor as a helpful ally in preparing for these new changes. To begin, servicers should contact their current vendors to see where they are in the process of updating their software to encompass the changes. Servicers should also take advantage of testing training and implementation support training offered by their vendor or Freddie Mac as it becomes available.
The importance of attending these scheduled training sessions cannot be emphasized enough. These meetings provide servicers the invaluable opportunity to ask questions specific to their business and learn important information about the changes straight from the source. Armed with guidance from both their mortgage software vendors and Freddie Mac itself, servicers will be well prepared to tackle the changes head-on in May 2019.
About The Author
Susan Graham is president and chief operating officer of Financial Industry Computer Systems, Inc. (FICS), a mortgage technology specialist that provides cost-effective, in-house mortgage loan origination, residential mortgage servicing and commercial mortgage servicing technology to mortgage lenders, mid-sized banks and credit unions. As president and COO, she is responsible for the overall management of the company’s day-to-day operations, strategic planning, customer relations and product development.