The two major players in the secondary mortgage market are Freddie Mac and Fannie Mae. Freddie Mac uses a software program known as LP, or Loan Prospector, to give its lenders an idea if a potential borrower will be able to qualify for a new mortgage debt. As a risk-assessment tool, LP is not only the first step in the process of helping lenders underwrite mortgages, but it's also designed to help borrowers find the lowest rates available.
LP, which stands for Loan Prospector, is the Freddie Mac automated underwriting service used by third-party loan originators and mortgage wholesale lenders that provides risk assessment for Freddie Mac's credit and pricing terms.
The Significance of LP
The results from running an application through the LP program help a lender to determine if the borrower needs to be reassessed for another loan program or if he simply needs to make some financial changes in order to be qualified for a mortgage. If a borrower receives a result of approve or accept, it means that the borrower qualifies for a mortgage. However, it does not mean that the loan will close, it simply means that there is a high likelihood of final approval.
Exploring The Function of LP
LP is a good tool for a mortgage lender to use to weed out successful mortgage applicants from those that will not produce a mortgage closing. Additionally, it tells the lender automatically what changes need to occur in order for the borrower to be able to qualify later. This gives the lender valuable information to pass on to a borrower who received a declined response from the program.
Identifying Various Types
Freddie Mac's LP is not the only mortgage underwriting software in the industry. Another major program is known as DU, or Desktop Underwriter and is the official loan underwriting software of the other major mortgage underwriter, Fannie Mae.
Other Significant Considerations
A decline by the LP software does not officially mean that a borrower will be denied for a mortgage. The lender should review the application and his entry work into the computer to determine if the decline was due to the applicant or the lender's entries into the program. Sometimes an error causes a borrower's application to be erroneously denied.
Identifying Various Benefits
LP is a good tool for lenders to use to determine quickly and effectively which clients he should focus on and which ones he should educate for future loan opportunities. It helps the lender to keep from wasting both his and the borrower's time on a mortgage as well.
- Freddie Mac: About Loan Prospector
- Freddie Mac: Loan Prospector
- Freddie Mac. "Our COVID-19 Response." Accessed Sept. 8, 2020.
- Fannie Mae. "Fannie Mae Assistance Options for Homeowners Impacted by COVID-19." Accessed Sept. 8, 2020.
- U.S. Department of Housing and Urban Development. "Foreclosure Avoidance Counseling." Accessed Sept. 8, 2020.
Lynn Lauren has been a professional writer since 1999, focusing on the areas of weddings, professional profiles and the banking industry. She has been published in several local magazines including "Elegant Island Weddings." Lauren has a Master of Business Administration and a Bachelor of Business Administration, both with marketing concentrations from Georgia Southern University and Mercer University, respectively.