Fannie Mae will expand the information used in its occupancy-risk messaging next month, giving lenders another opportunity to resolve questions about a borrower’s intended use of a property before the loan closes.
The change, detailed in release notes published Oct. 14, comes alongside new guidance and findings from Fannie Mae and Freddie Mac linking digital verification and earlier review to fewer loan defects and reduced repurchase exposure.
For originators, those efforts reach directly into daily production: documenting occupancy, validating qualifying income, and resolving inconsistencies that can delay a closing or create problems after delivery.
More Information Behind The Occupancy Flag
Beginning the evening of Nov. 13, Fannie’s Desktop Underwriter will issue an occupancy-risk message using additional information related to a borrower’s housing and rental-property history, financial profile, and/or the characteristics of the subject property.
The message identifies an elevated risk that the occupancy type is inaccurate. It instructs lenders to document their review and the supporting information used to confirm the designation. If primary occupancy cannot be confirmed, lenders are directed to change the occupancy to investment property and resubmit the file to DU.
That builds on the Sept. 25 DU update, which introduced an occupancy message combining application information and external data.
Existing messages also call attention to files where occupancy was changed from investor to primary, a borrower’s address does not match a property submitted as a principal-residence refinance, or Fannie recently purchased another loan identifying a different property as the borrower’s primary residence.
A flag calls for review and documentation; it is not a finding that the borrower committed fraud. The instructions give originators a reason to clarify the intended occupancy early and ensure the file supports it.
Freddie Connects Automation To Loan Quality
Freddie Mac is emphasizing the financial consequences of defects in other parts of the file.
In an Oct. 13 commentary, Kevin Kauffman, senior vice president of seller engagement, said asset, income, and liability issues account for 88% of defects in Freddie’s analysis.
Loans using its asset and income modeler, or AIM, and automated collateral evaluation, or ACE, had a defect rate 2.5 times lower than loans that did not use those capabilities, he wrote.
Freddie also said lenders maximizing its digital capabilities can save up to $1,700 per loan and shorten cycle times by eight days.
Separately, participating lenders have collectively avoided approximately $20 million in performing-loan repurchases through Freddie’s repurchase-alternative pilot, according to Kauffman. That program addresses remedies for defective performing loans, while its verification tools aim to help prevent defects during origination.
Less Repeat Verification
Fannie’s Oct. 12 quality-control guidance offers another practical benefit: eligible income and asset information validated through approved automated digital sources does not require QC reviewers to recalculate or reverify those components.
Fannie expanded that validation capability in 2024, allowing lenders to use a single 12-month asset verification report to validate income, employment, and assets.
Successful validation can also provide representation-and-warranty relief on eligible components. Lenders remain responsible for quality control and resolving contradictory information.
Fannie encouraged lenders to use its DU Validation Service Insights Report to track validation rates, participating vendors, and common reasons validation was not obtained. That gives production and QC teams a way to identify where existing tools are being missed or where workflow and training changes could help.
For originators, the changes put more attention on the information collected at application and the findings returned during underwriting. Clear occupancy documentation and successful digital validation can help resolve questions while the file is still being assembled, with fewer requests carried into later reviews.
