Paradatec Named Verified UCD Producer By Freddie Mac

Paradatec, Inc., a provider of Optical Character Recognition (OCR) solutions for mortgage file processing, announced that it is a verified technology integration vendor for Freddie Mac’s Loan Closing Advisor platform. Paradatec’s WriteUCD module was developed in accordance with Freddie Mac’s requirements for producing valid Uniform Closing Dataset (UCD) files.

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The UCD is a common collection of data that mortgage lenders will be required to deliver digitally to Freddie Mac and Fannie Mae starting on Sept. 25, 2017. This requirement is part of the Uniform Mortgage Data Program (UMDP), an industry-wide drive to build a better housing finance system in the United States.

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The WriteUCD module leverages Paradatec’s advanced OCR solution for the mortgage market to extract data from closing disclosure (CD) documents in mere seconds per page and then format that data in the required format.

According to Neil Fraser, Paradatec’s Director of US Operations, “We’re pleased to have obtained Freddie Mac validation as our clients need the assurance that they can meet the GSEs’ requirements well in advance of the September deadline. If a lender’s current loan origination system partner or document provider is struggling to produce a valid UCD file, they can sleep soundly knowing that Paradatec has them covered with our new WriteUCD module.”

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Paradatec also announces the release of their new AuditUCD module for auditing UCD file content against the closing disclosure contained in the UCD file. Fraser continues, “Since we’re building the UCD file from extracted closing disclosure data, it’s just as easy for us to unpack a UCD file’s content to compare the individual data elements against the values extracted from the submitted CD to verify the integrity of both components in the UCD file. Any elements that don’t match will be flagged in our XML output for further review and resolution. Given the volume of content that will be produced and need verification with this UCD initiative, our solution is uniquely positioned to offer a high degree of automation and operator efficiency.”

About The Author

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at

GSE Approves New eMortgage Technology Solution Provider

NotaryCam, Inc., a provider of online notary and mortgage eClosing services, announced that the company’s eClose360 online notary platform has been tested and approved by Freddie Mac for eMortgage origination. To be approved, vendors must meet Freddie Mac’s requirements to provide eMortgage solutions.

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“We are very pleased that our technology has now been approved by Freddie Mac for eMortgage closings,” said Rick Triola, Founder and CEO of NotaryCam. “Many portfolio lenders and those who sell eMortgages to other investors have been relying on our patented eClose360 ceremony for some time. Now, mortgage lenders who sell their production to Freddie Mac can execute a full set of loan docs, register with MERS eRegistry and fund in near real-time and share those benefits with their partners and borrowers.”

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NotaryCam’s eClose360 is an online notary platform that allows mortgage closings to take place entirely online, solving the last-mile digital challenge, thereby removing all associated stress and the friction of having to attend closings physically. The technology won more attendee votes than any other digital mortgage technology in its category after its demonstration at the recent Digital Mortgage Conference in San Francisco.

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NotaryCam allows businesses and individuals to legally notarize, sign and execute documents and agreements online. The company has legally completed tens of thousands of notarizations in all 50 states and over 65 countries. Parties from anywhere in the world can connect to a live notary public in a secure virtual signing room. Identities and eSignatures are verified in a face-to-face web interaction to eClose real estate and mortgage transactions, notarize deeds, power of attorney, health directives, and more. NotaryCam was developed in lockstep with the needs of both Government Sponsored Enterprises (GSEs) to ensure that eClose360 meets all of their requirements. NotaryCam signing agents are also certified by the National Notary Association.

LOS Launches Major Upgrades

Ellie Mae has made major enhancements to its Encompass LOS. Encompass 16.3 includes new features for Encompass, enhancements to Fannie Mae and Freddie Mac solutions, new Total Quality Loan (TQL) service ordering options, additions to Secondary Marketing and significant enhancements to Encompass Product & Pricing Service.

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“The latest major release of our Encompass all-in-one mortgage management solution offers enhancements to our integrations with Fannie Mae and Freddie Mac and more customer choice when ordering TQL services with leading providers like First American Mortgage Solutions and DataVerify,” said Jonathan Corr, president and CEO of Ellie Mae. “And later this fall we’ll be offering major enhancements to the Encompass Product & Pricing Service expanding our lenders ability to manage their own custom programs and well as a new dashboard to provide visibility into the status of pricing files as well as securely manage investor credentials.”

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Encompass 16.3 features several core updates, including:

>>Settings Report: This new reporting feature enables the quick generation of reports that contain an organization’s user access settings, providing visibility for business managers as well as responses to possible auditor questions related to access rights.

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>>Business Rule Export and Import: This new feature enables the export and import of a variety of configurable business rule types to Extensible Markup Language (XML) files. These business rules are those that are changed most often and the export view assists lenders deploying Encompass software updates between test and production environments.

>>Enhanced Support for Uniform Closing Dataset (UCD) Export: Well in advance of the new UCD delivery requirements going into effect September 25, 2017, lenders are able to test this updated export in support of the more detailed data collection expected by Government Sponsored Entities (GSEs), including detailed classification of adjustments and other credits.

Secondary Marketing Enhancements: New tracking features have been added, designed to support multiple types of Loan Collateral and includes calendar driven follow-ups for collateral requests and a history of collateral requests, receipts and shipments with associated comments. Encompass has also expanded its lock desk hours feature to include separate hours by loan channel (Retail, Wholesale, Correspondent) and the ability to have different lock desk hours on Saturdays and Sundays. Secondary Marketing functionality also now supports Fannie Mae’s Pricing and Execution (PE) MBS pricing platform. And finally, updates were made to the 1098 Mortgage Interest for creating a 1098 that will comply with the tax rules for 2016 and beyond.

Fannie Mae Enhancements: Enhancements to Encompass’ unique automated workflow for Fannie Mae’s Desktop Underwriter and EarlyCheck drive more efficiencies and help identify and correct any potential eligibility or data discrepancies prior to loan delivery.

Freddie Mac Enhancements: Encompass now offers pop up screen capabilities that show data elements changed between orders within Automated Underwriting System (AUS) tracking to help easily identify any data discrepencies when using Loan Product Advisor, the cornerstone tool in the Freddie Mac Loan Advisor Suite.

New Housing Program Helps Underserved Communities

Freddie Mac,  in partnership with New American Funding, and Alterra Home Loans, two  national mortgage bankers, announced the launch of Your Path, a new loan program that makes affordable homeownership opportunities available to underserved communities.

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After researching the U.S. housing market, Freddie Mac identified that certain demographics were experiencing obstacles with purchasing a home. Your Path provides flexible financing options to responsible lenders who serve a diverse range of homebuyers.

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Your Path puts affordable homeownership within reach for underserved communities:

  • Self-employed workers – provides flexible self-employment verification
  • Seasonal employees – accepts shorter secondary income history
  • Multi-generational families
  • Buyers using cash toward the purchase
  • Gives consideration for non-traditional income sources
  • Expanded guidelines

“We have a passion for making sure everyone has an equal opportunity to achieve the American Dream.  That’s why we’re excited to work with Freddie Mac to create a greater pathway to homeownership for more people,” said Patty Arvielo, President of New American Funding.

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“By collaborating we can put what matters most first, better serving underserved consumers and helping them build wealth through homeownership. We are excited to partner with Freddie and NAF in this effort”– Jason Madiedo, CEO of Alterra Home Loans.

In a time when automated underwriting is the standard, Providing access to credit for more consumers to enjoy the benefits of homeownership companies must use  both automated and manual underwriting, which allows underwriters to individually review a borrower’s financial profile in order to make sure qualified buyers aren’t denied access to credit opportunities.  As a result, Freddie Mac decided to work with New American Funding and Alterra Homes Loans  as a trusted lenders because of their  demonstrated track record in effectively evaluating creditworthiness for the broader  public.

CoreLogic Updates Comply With GSE Demands

CoreLogic announced that its condominium project review solution, CondoSafe, will support the new Fannie Mae and Freddie Mac Condominium Project Questionnaires that the Government Sponsored Enterprises (GSEs) announced on March 29, 2016. CondoSafe helps lenders and mortgage investors determine whether individual condominium projects meet eligibility guidelines and also improves the efficiency of condominium project review by delivering the required association documents.

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Designed as an industry-wide service, CondoSafe solicits, stores and monitors information from more than 140,000 condominium associations (COAs) in the U.S., and conducts a questionnaire-driven structured analysis of that information to assist lenders in determining if a condominium project is eligible for GSE and investor lending. In addition to the standardized CondoSafe questionnaire, the GSE Short and Full Form Condominium Project Questionnaires can be requested within CondoSafe, and will be delivered along with the related COA documents that are needed to complete the project review.

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“In 2015, over five million home sales in the U.S. were in condo projects, representing a 10 percent share of the market. Changes in demographics and housing preferences favor faster growth of multifamily housing, including condos. CoreLogic worked closely with leading lenders, U.S. housing agencies, condominium industry groups and real estate professionals to create an industry-standard condo project review solution that addresses the inherent problems found in condo lending.” said Jacquie Doty, vice president, industry outreach, for CoreLogic. “We are excited to incorporate the new condo project questionnaires introduced by the GSEs to help bring consistency to condo project reviews across the industry and reduce lending risk for both originators and investors.”

The Cost Of Quality


TME-Becky-BarbaraHow much should we pay for quality? Is focusing on quality the right choice when the cost exceeds the return? These questions are being asked a lot these days but very few if any answers are forthcoming. Most companies seem to be so concerned about the consequences of any problem that does or might exist in any one loan, they are doubling or even tripling the number of file reviews being done. Is the cost of these additional reviews actually worth it?

Because of the quality failures that were at the very heart of the Great Recession, we are now experiencing the repercussions from Fannie Mae, Freddie Mac and FHA as all have come out with new Quality Control requirements that are designed to produce loans with zero defects. In addition, the new regulations and standards that CFPB have placed on both servicing and production require strict adherence to the standards established for the quality of these operations. To the industry this has meant adding additional reviews, more frequent reviews and more rework on loans. And still the risk of repurchase or consumer action remains. All of these activities result in more costs but so far we haven’t seen any financial benefit for these efforts. Is this normal? Is this what we should expect? Or should we, as one frustrated manager put it, start making buses instead.

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Stefen Heinloth, in the February 2000 edition of The Quality Digest asked a similar question by querying “Are quality related efforts worth their cost?” In answer to this question he described two things that have to exist for the answer to be true. One is that quality has to be measurable. Only then can a company determine if what they are spending to meet standards, theirs or others, is really worth it. The second thing is that there must be a cause and effect relationship between quality and financial results. He goes on to say he sees that “companies are taking a return on quality approach, viewing quality as an investment and holding quality efforts accountable for bottom-line results.”   Of course this was for other industries such as manufacturing, not ours.

The concept of value.

Unfortunately Mr. Heinloth’s statement was focused on the application of quality management techniques and concepts that this industry has yet to learn. Despite the labeling of ideas and dictates as “manufacturing quality’, what we have been directed to do or what we have scared ourselves into doing is not in any way shape or form, Quality Management. In order to better understand what they are and how we, as an industry can implement them in a manner that allows us to value quality improvements several of these concepts need further explanation.

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One mainstay of Quality Management is the ability to gain value by the improvement of the product/service being provided. However, improvement requires measuring the process and finding out what is not working right; what requires rework and what process failures result in products that have to be “scraped”. In order to do that we must be able to measure our processes. Edwards Deming stated that if you can’t measure it, you can’t improve it. So if we are going to identify what parts of our processes are causing us problems we have to measure them. Of course, the quality control process is supposed to be doing that, right? Unfortunately there are numerous flaws in the programs that Fannie Mae, Freddie Mac and FHA require. But more importantly, when lenders are dissatisfied or question the results of their QC programs they fail to make any changes that would be beneficial. One reason is that most don’t know what is wrong or how to fix them. So here’s a quick guide to QC that anyone can follow.

1.) QC should be measuring where you have a risk in your process. For example, if a processor or underwriter doesn’t calculate the borrower’s income correctly, that is a risk to the process. In addition, if they enter the wrong amount of income into an automated underwriting system, that is also a risk. These process variance or “defects” should be measured for every loan yet there are far too few measurements that tell the number of times this type of process failure occurs.

2.) Process variances cannot be labeled by some subjective measure of precision. In other words there are no “critical” defects or “minor” defects. A defect is a defect. Since it is only when this defect has proven to cause a default can it begin to be labeled as a critical issue. As we all know there are very few, if any defects that impact a loan to this degree.

3.) Random events do occur. We seemed to have ignored this concept. Way too many underwriters and production staff spend time defending a defect in a loan when it is simply a ransom mistake. Way too much time and effort is spent on reworking a loan file when QC identifies an error. This is particularly true of “curable” items. Over and over QC reports identify defects rated as curable. What does this even mean? There is no lender in the industry whose process says, generate this document but DON’T put it in the file so that when we discover an error we can “cure” it. It sounds like some type of disease.

In reality failing to put documents in the file is part of the process and if it doesn’t get done when the process says it should, it is a defect. Spending time going back to find the document or creating another one, is plain and simple just unnecessary rework and rework costs money.

4.) Which brings us to another basic issue. How do we know if the defects identified in a review are really worth spending money on to fix? Here is where statistical knowledge is at its best. Since we are not doing a review of all loans, we need to know if the frequency of a defect is really a problem. Identifying this with just one review is probably tough, but if looking at multiple reviews, QC staff should be able to tell management the probability that the defect found is not random.

5.) Since the majority, if not all QC staff do not have the statistical knowledge to achieve this, another way for a lender to determine if something in the process needs fixed, is to look at the industry as a whole. Having a benchmarking tool that can be used to compare rates of occurrence on a specific issue within the industry to your defect rate would immediately tell you if you have some type of systemic problem that is driving this excess number of mistakes. If your percentage of errors is much larger then it would normally be, there is a good bet that something needs to be fixed.

6.) Finally there has to be an established cause and effect relationship between the defect and the risks inherent in the product. If there is none, then why are you spending time and money testing for it, “curing” it or trying to redo the process? Well of course you say, that only makes sense. So then, what are the defects that cause an unacceptable level of risk in a mortgage loan product or a loan servicing outcome? Unfortunately, we don’t know, or at least most of us don’t know. Sure we say LTV is a risk or DTI. And what about insufficient reserves? But where are the statistics that validate that?

While the industry has lots of data on performance and some of these static elements we attribute to poor performance, we have no way of knowing if the data we have used is accurate. In reality the only work done that is publically available are the results of investors and others whose interest is selling the product not improving the process.

Ultimately we do not have a standardized way to test our processes or relate them to product failures. We have failed to develop any meaningful relationship between process failures and risk and we spend all of our time and money on rework and unproven changes. No wonder recent MBA data identified that total loan production expenses increased to $6,932 per loan in the second quarter of 2014 from $5,818 per loan in the same quarter the previous year. This number is only going to get worse as QC staff increase the number of reviews for TRID and other regulations and agencies changes.

Where is the value?

Based on all the issues identified above, it is hard to comprehend that the industry has any idea of the value of their operational processes. Since we haven’t correlated defects to repurchases or rework let alone done any real work of identifying the causal relationships of these errors, it is impossible to know the difference between the cost of a product produced by a satisfactory process or the value of a consumer/investor that is satisfied with a successful servicing program. However, in order to determine that we do in fact know some of these numbers, let’s discuss the return on investing in quality improvements.

The return on the investment for any process improvement is calculated as the ratio of two financial estimates:

ROI=Net returns from improvement actions/ Investments in improvement actions. The numerator and denominator are defined as follows:

  • Net returns from improvement actions is the financial gains from the implementation of the improved actions, which are generated by new changes in quality, efficiency and utilization of services, or in payment for those services.
  • Investment in improvement actions are the costs of developing and operating the improvement actions.

Looking at an ROI calculation from this perspective it is fairly straightforward as to what the quality, efficiency and utilization of resources are involved in producing loans. If a produced loan does not follow the guidelines or processes in place to ensure a quality loan, then it is defective. This can mean that if the defect(s) are discovered by an investor, the loan may be rejected by the investor. If discovered prior to sending the loan to the investor it may have to be placed in portfolio, may have to be held on a warehouse line for an excessive amount of time increasing costs or sold as a “scratch and dent” loan. If problems are discovered during the process or by QC, the problem will have to be “cured” which involves rework by staff or even asking the consumer to supply additional information or replace documentation that was provided earlier. Again, this is more cost. And we can’t forget to include the time that production resources are dedicated to fixing something that has already been through the process rather than on generating additional income by producing additional loans.

However, we can develop a hypothetical example of how the ROI on quality can be determined. For our purposes let’s say that a review of the defects identified above cost around $2,000 per loan on average. Using the MBA production cost of $6,932 per loan we would add these additional costs of $2,000 per loan which raises the overall average cost production $7435. The cost of producing 100 loans per month is therefore $743,500.

Once we identify the operational controls that failed in the origination process that increased these production costs, we know what we have to fix. For our purposes we hypothesis that a change to the system will prevent the loan from moving to the next stage of production when these errors occur and training of the processors should correct the error.   The cost of these fixes is $25,000. The change is then implemented.

Once implemented, the QC staff measures the results. They find that the problem has been eliminated by these changes. In addition, the efficiency created by the revised process flow has taken an additional $10.00 off the cost of producing a loan.   Therefore we have achieved a net return of $2,010 from these improvement actions.   This change reduces our cost per loan to $5,425. Our monthly production cost, on average for 100 loans is therefore $582,500 or a difference of $ 2,010. Using the ROI formula for quality improvements our return is 6.44%.

While this example is somewhat simplistic in nature, it demonstrates that if individual companies were to understand and apply the concepts of quality management to their organizations, the value would be clear. So instead of complaining about the costs of quality control and the perceived cost of reviewing an excessive number of loans to ensure that they meet investor and regulator QC standards, lenders would be wise to redefine quality and begin to implement these previously validated, achievable returns on the investments they make.

About The Author


Rebecca Walzak is a 32 year veteran and Industry Expert on Operational Risk Management and Organizational Control. She is a leader in developing Operational and Control automated assessments for lenders, rating agencies and investors. Walzak has expert knowledge in all areas of the mortgage industry including production, servicing and secondary.
Barbara Perino is a Certified Professional Co-Active Coach guiding her clients who are executive leaders and their staff. Barbara has been trained through The Coach Training Institute (CTI) located in San Rafael, CA. She completed a Coaching Certification Program through CTI and the International Coaching Federation (ICF). Prior to becoming a coach, Barbara was a 16-year veteran of the residential mortgage industry.

DocMagic Integrates To MERS eRegistry

DocMagic has now completed its integration with the MERS eRegistry, making it one of only a few industry vendors to integrate with the widely used system. Here’s why this should matter to lenders:

Launched in 2004, the MERS eRegistry is the legal system of record that identifies the owner or holder (Controller) and custodian (Location) for registered eNotes and provides greater liquidity, transferability and security for lenders, according to MERSCORP Holdings, Inc. It was created in response to demand by the mortgage industry for a system to satisfy certain safe harbor requirements under the Uniform Electronic Transactions Act (UETA) from 1999, and the Electronic Signatures in Global and National Commerce Act (E-SIGN) from 2000.

“The MERS eRegistry system excels at effectively handling a vital service for eMortgage originations,” said Dominic Iannitti, president and CEO of DocMagic. “Fannie Mae and Freddie Mac both require use of the MERS eRegistry for all eNotes they purchase. DocMagic’s integration with MERS’ system fulfills the GSEs’ requirement and thus allows us to pass the benefits that the service offers along to our customers.”

Using an eClosing platform such as DocMagic’s eSign platform, the borrower simply signs the eNote, and the lender then immediately and efficiently registers it on the MERS eRegistry, where it securely resides and can easily be referenced at any time. Thereafter, the lender is able to simply transfer control to investors.

Notable is that DocMagic’s recent acquisition of eSignSystems, the mortgage industry’s leader in eSign and eVaulting Solutions, also has MERS eRegistry connectivity through its SmartSAFE suite. SmartSAFE facilitates secure eDelivery, eSigning and eRetention with a legal “system of record,” providing detailed audit trails from the beginning to the end of transactions.

About The Author


Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at

The President’s FHA Fee Move Gets Kudos

The National Association of Hispanic Real Estate Professionals (NAHREP) supports President Obama’s plan to reduce mortgage insurance premium (MIP) fees for FHA loans in order to expand the availability of HUD loans to include more deserving borrowers. NAHREP also feels that government sponsored enterprises Fannie Mae and Freddie Mac must follow suit if the national recovery is to realize its true potential. With over 21,000 members, NAHREP is the country’s largest trade organization for Latino real estate and mortgage professionals.

“Hispanics represent the largest segment of new homebuyers in the market today,” said NAHREP President Jason Madiedo. “The reduction in MIP premiums could facilitate the dream of homeownership for hundreds of thousands of additional qualified buyers.” However NAHREP also feels that lowering borrower costs by reducing the current excessive guarantee fees and loan level pricing adjustments at Fannie Mae and Freddie Mac are equally important in supporting the Obama administration’s stated goal of ‘preserving broad and affordable access for all creditworthy families.’

“Fannie Mae and Freddie Mac currently account for more than 80 percent of the market,” said NAHREP Co-Founder and CEO Gary Acosta. “Reducing FHA fees is an important first step, but getting the GSEs back in the first time homebuyer market would have an even greater impact.”

NAHREP is a non-profit 501c6 trade association dedicated to increasing the homeownership rate among Latinos by educating and empowering the real estate professionals that serve them. Based in San Diego, NAHREP is the nation’s largest trade organization for Hispanics with more than 21,000 members in 48 states and 40 affiliate chapters.

About The Author


Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at

An Interesting Idea


The Federal Housing Finance Agency (FHFA) can use existing powers to reverse the government’s control of Fannie Mae and Freddie Mac – without Congress, says Cliff Rossi, professor of the practice in finance at the University of Maryland’s Robert H. Smith School of Business and executive-in-residence at the school’s Center for Financial Policy.

Rossi has held senior risk management positions at Freddie Mac and Fannie Mae. The reform process would involve:

>> Developing a recapitalization plan that complies with FHFA capital buffers for the agencies

>> Developing a set of stringent risk-based capital requirements to be phased in over a specified period of time

>> Terminating the sweep of Fannie and Freddie profits to the U.S. Treasury

>> Establishing strict executive compensation requirements imposed by the FHFA

>> Accelerating the wind-down of both government sponsored enterprises’ (GSEs) retained portfolios

Rossi says such action is overdue:

“The demise of Fannie and Freddie in 2008 by entering conservatorship represented one of the darkest days in the history of the US housing finance system,” he said. “Weak regulatory oversight, low capital standards, a poor underwriting environment and large retained portfolios ultimately brought these companies to their knees financially. In the wake of this crisis it virtually wiped out private capital investment in the mortgage secondary market.

“Today, U.S. taxpayers remain liable for losses generated by Fannie and Freddie. And, each year that goes by is another year of contingent liability for the government.

“A legislative solution is virtually impossible given previous attempts by Congress for a balanced proposal, as well as the sheer complexity of redesigning a new secondary market,” he says. “The diffusion of interests is so broad and the implications from any reform is so little understood, the only pragmatic solution is to devise a GSE exit plan from conservatorship.”

Rossi was intimately involved in TARP and stress test activities as Managing Director and Chief Risk Officer for Citigroup’s Consumer Lending Group, and he was Chief Credit Officer at Washington Mutual and at Countrywide. He started his career during the thrift crisis at the U.S. Treasury’s Office of Domestic Finance and later at the Office of Thrift Supervision working on key policy issues affecting depositories.

His Capitol Hill appearance was part of a forum organized by Investors Unite, a coalition of private investors calling for an end to government conservatorship of GSEs.

About The Author


Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at

The Sugar Mae Experiment

When it comes to the question of what to do with the government-sponsored enterprises (GSEs), I have always believed that genuine success can be achieved by removing the GSEs from the federal system and transferring their control to the states. After all, there is no such thing as a national housing market, and each state’s needs are unique.

State housing finance agencies have traditionally been more aware of the problems facing local homeowners. Indeed, take a search back to headlines in 2006 and 2007 and you will find it was the state housing finance agencies that were sounding the alarms about the collapsing housing bubble while their federal counterparts pretended that nothing was amiss.

One of my favorite examples of a state agency taking the initiative to bolster its local housing market took place in the early 1990s. Up in Vermont, an effort was made to create a secondary marketing vehicle that served the distinctive challenges of the state. It wasofficially called the Green Mountain Mortgage Market and it was run by the Vermont Housing Finance Agency (VHFA). However, the program was nicknamed Sugar Mae – as a tribute to Vermont’s celebrated maple syrup and in keeping with the Mac and Mae names carried by secondary marketing entities.

Sugar Mae was designed to help securitize rural residential loans that did not meet the GSE underwriting standards. Back in the early 1990s, underwriting standards were much stricter – the loosey-goosey practices of the Clinton years were still a bit away – and properties that had rural attributes such as a wood burning heat source or unpaved roads were not welcomed for securitization by the GSEs. As a result, most Vermont lenders had to stick these loans in their portfolios.

Under the Sugar Mae program, the VHFA would purchase these difficult rural loans and swap them for Fannie Mae’s mortgage-backed securities. Banks that participated in this program agreed to use the proceeds of their loan sales for affordable housing investments. The VHFA would sell the securities created from those loans to local pension funds.

In concept, it was a win-win situation. But, in reality, it never clicked. In fact, only one transaction took place during Sugar Mae’s relatively brief existence. Problems with the above-market interest rates on the rural residential loans and complaints from pension funds of a too-high premium on the securities they were expected to purchase stalled the program.

Yes, it would be easy to dismiss Sugar Mae as a failure – at least in terms of not meeting its projected volume. But the program, I believe, offered a responsible and intelligent attempt to try something different that addressed local housing market needs without being a burden on taxpayers; indeed, Vermont’s taxpayers were not burdened with wasteful financial residue. By that measurement, Sugar Mae was an innovative success in planning.

And this circles back to the stalemate in the GSE reform effort. Rather than leave the issue to a bickering Congress and an indifferent Obama Administration, I would open the debate to the state housing finance agencies to consider how they could inherit GSE duties if they were localized to state level operations.

Who knows what the state agencies can produce? Maybe the foundation started by Sugar Mae can be taken up, tinkered with, and spun into an entity that will be able to function and blossom? After all, an experiment that seeks to create new opportunities is often preferable to the misery of a dysfunctional status quo. And the real tragedy in business (as in life) is not about trying and failing, but in never trying at all to make things better.

About The Author


Phil Hall has been (among other things) a United Nations-based radio journalist, the president of a public relations and marketing agency, a financial magazine editor, the author of six books and a horror movie actor. Also, as you will discover, he is not shy about stating his views.