What to Do with DU and Lp? (Cyberthoughts‪)‬

Lost in all of the wrangling over what to do with Fannie Mae and Freddie Mac is what I perceive as an equally important issue of what to do with Fannie's Desktop Underwriter[R] (DU), Freddie's Loan Prospector[R] (LP) and the other various technologies developed by the government-sponsored enterprises (GSEs). As I have long said, the housing bubble was created in large part because of the automated underwriting systems (AUSes), with their ability to easily modify the types of loans the GSEs would accept. Without DU and LP, the underwriting of all prime mortgages couldn't have become so egregious in the years that followed their introduction. It was in May 2004 that I wrote in a similar column for this very magazine that I feared a real estate bubble was inevitable, and at that time called out the GSEs and their AUSes for their dramatic role in such a bubble, I said then about the AUSes, "To rely on them so blindly could become a recipe for disaster."