Freddie Mac launched its Loan Prospector automated underwriting system as a completely Web-based application December 8. Included in LP online is an online fulfillment management service that allows mortgage lenders and brokers to order appraisals, flood determinations, title products and property surveys from vendors through the loanprospector.com website.

Freddie Mac and BCE Emergis announced September 19 that BCE Emergis has agreed to acquire on-line mortgage processing and closing technology tools from Freddie Mac, while Freddie Mac has agreed to distribute the tools to its lenders in the United States' mortgage market.

Significantly, LP Online's Vendor Services Exchange will “enable mortgage lenders and brokers to more easily obtain an array of third-party services needed to process, close and fund mortgage loans via the Internet,” the companies said. Freddie Mac has been testing an online version of its Loan Prospector automated underwriting suite, which will include the ability to order settlement services, including appraisals.

While the vendor services platform will not be a “blind order” system, and the loan officer or broker will still be able to select the appraiser he or she wants to use, registration with the system will still be required.

“With respect to registration, a standard user agreement will be used, and it will be a contract between BCE Emergis and third-party vendors,” Anna di Giorgio, Emergis' spokesperson, told Appraisal Intelligence. “We're in the process of redrafting those user agreements right now to brand them with Emergis' name.”

“Freddie Mac has been piloting (vendor services) for several months now on its Loan Prospector web site,” Patricia Boerger, Freddie Mac spokesperson, said at the time of the BCE deal. At least five large, national providers were said to be involved on the receiving end of third-party services orders for the beta test, but neither company would confirm to Appraisal Intelligence which ones they were. When made widely available, not only vendor management companies but independent vendor/appraisers will be able to register, di Giorgio said.

Asked what would happen if a LO or broker wanted to use an appraiser that wasn't registered with the system, di Giorgio replied, “Then that person needs to register.”

Lenders will be responsible for working with Freddie Mac and BCE Emergis to get their vendors of choice registered to receive orders on the system, Tricia McClung, Freddie Mac's vice president of Loan Prospector, told us at the Mortgage Bankers Association of America (MBA) conference & expo in October.

Branded as Emergis Vendor Services Exchange, the vendor/order management platform is a web-based workflow management system that electronically transmits loan data and documents between mortgage originators and third party services providers.

Appraisers and shops will receive e-mail notification that an order has been placed, and will log in to the system to accept or reject it. If accepted, the system will provide status updates to the originator, fulfill the order and upload required documents.

Registration of vendors can be as simple as e-mailing back and forth a PDF form, or more complicated, depending on the originator/vendor relationship, McClung said. The goal is to have originators maintain their existing relationships with local and national vendors.

The cost of Vendor Services Exchange is transaction-based, with vendors paying only for the orders they accept.

The vendor service platform will add a facet of appraisal functionality to LP, but will not be its first valuation feature. LP currently uses (and will continue to use) an AVM (automated valuation model) to determine the borrower's eligibility for a “streamlined appraisal.” “As with any new analytical capability, we are taking a conservative approach here,” said Peter Maselli, SVP, Mortgage Services Division for Freddie Mac. “For instance, we require full, traditional appraisals on higher-risk loans — such as cash-out refinances. In other types of refinancing, we also do not purchase loans on which an AVM is the sole source of collateral valuation,” he said. Properties and borrowers have to meet eligibility requirements.

Mortgage brokers had been anticipating the rollout of Freddie's LP on the Internet because automated underwriting helps reel in borrowers while their attention is still on them. Like not letting an auto buyer out of the sales office until a deal has been struck, LOs don't want prospective borrowers to have to wait for an underwriting decision. Houston, TX-based Allied Home Mortgage participated in the pilot program for Freddie Mac's LP on the Internet. “About 30% of the people who start a loan app at our web site will actually complete the thing now because they're going to get an automated underwriting decision,” Ron Litt, Allied VP and CIO, told us. “Freddie Mac's LP project was really the beginning of the whole process of getting a person from application to closing without a lot of intervening fingers in the pie. When you go to get a mortgage, you've got four or five different companies who are working behind the scenes, any one of whose misstep can delay the process or totally negate it.” Allied was recently ranked the highest-volume mortgage broker in the United States in 2001 by Broker Magazine.

Adding appraisal order/process functionality to LP is an important development precisely because of its growth in use and acceptance in the mortgage industry. When LP first became available, nine lending and mortgage brokerage companies used it. A year later, more than 350 lenders and 5,000 mortgage industry professionals used the service. Now, on the eve of its launch with a vendor management component, more than 14,000 lenders and mortgage brokers use it, the company reports.

Freddie's GSE counterpart, Fannie Mae, facilitates settlement services already via its MORNET suite, powered by RealEC. “Settlement services will be facilitated on LoanProspector.com as a long term vision of one of its key offerings,” one of the system's architects, Gunnar Bergstrom, VP of e-documents, signatures and acknowledgements for Freddie, said. “You could draw conclusions that this is equivalent to Fannie Mae's MORNET Connections.”

In 2001, LP funneled more than 7.3 million loan applications, nearly double the 3.8 million of 2000. In 2001, in conjunction with the launch of its “streamlined appraisal” offering, Freddie Mac calculated the average appraisal cost at $334. In 2001, therefore, Freddie estimates that $2.44 billion worth of potential appraisal business was hitched to LP's automatic underwriting system.

The company wants to make it easier for appraisers to get that business — because it both puts consumers in homes more quickly, and makes it easier on LOs and brokers to strike while the iron is hot. “Our next step as an industry is to simplify the rest of the mortgage origination process,” said McClung. “New web-based tools need to be developed to streamline additional mortgage processes lenders and brokers use to originate home loans. That means leveraging automated underwriting to create a fully online origination process,” she said.

As di Giorgio suggested, you need to register.