WASHINGTON — Lenders and credit bureaus are gearing up for Fannie Mae's June 25 launch of its "trended data" initiative, which provides a new data element to its automated underwriting process.
The program provides a snapshot of an applicant's revolving credit payments in an attempt to better divine a borrower's creditworthiness. The launch marks a significant change for the mortgage industry.
"Trended data is not considered in currently available credit scores, so consideration in the Desktop Underwriter credit risk assessment will be its first widespread use in the mortgage industry," Eric Rosenblatt, a Fannie vice president, said in a recent commentary.
Fannie Mae has been under pressure for some time to improve its credit scoring criteria and trended data providers Equifax and TransUnion are readying for the new rollout.
"TransUnion and Equifax trended data are improvements to the traditional credit report and will be included in the tri-merge credit report lenders or resellers send to Fannie," said Joe Mellman, vice president and mortgage business leader at TransUnion.
It will provide Fannie and lenders with a borrower's payment history on their revolving credit accounts over a 24-month period. In the initial rollout, the government-sponsored enterprise will focus on two factors that will provide more insight into a borrower's financial behavior.
Fannie will be looking to see if consumers pay off their entire credit card debt each month or make minimum payments and carry a balance.
"If the borrower pays off their credit balance every month, that is obviously a stronger borrower and demonstrates an ability and willingness to make those payments," Timothy Mayopoulos, Fannie Mae's chief executive, said during a recent earnings conference call with reporters.
Second, Fannie will be looking to see if the borrower has exceeded his or her credit limit. Borrowers who have never exceeded their credit limit are considered less risky than those who have.
"There are a lot of insights that come from trended data with exposure over time," Mellman said in an interview.
Some members of Congress, minority and consumer groups have been urging Fannie to update is credit scoring models, which were mainly based on Fair Isaac & Co.'s older scoring system.
During the May 5 conference call, Mayopoulos stressed that Fannie has its own internal proprietary credit scoring methods and using trended data will make it more sophisticated. "Some people suggest we slavishly follow FICO. That is not true," he added. "We evaluate credit data through own automated system" — Desktop Underwriter — "and form our own judgments about the creditworthiness."
Starting June 25, loan files that do not have trended data will not be accepted for processing by Fannie, according to Pete Mills, a senior vice president at the Mortgage Bankers Association.
Trended data separates borrowers into "transactors," who pay off their credit card balance every month, and "revolvers," who make minimum or partial payments and carry a significant or growing balance.
"The transactor with a middling credit score has a better chance of getting their loan approved than a revolver with the same credit score," Mills said. Overall, "trended data is supposed to be neutral or expand the credit box for potential borrowers according to Fannie Mae."
Craig Crabtree, senior vice president and general manager of Equifax Mortgage Services, said: "This is an exciting time for the industry. It is the first time that the credit report has been changed in 27 years."
The current credit report includes a FICO score and tells the lender how many times a borrower has missed a payment in the last 12 to 24 months. A tri-merged trended data report provides 24 months of actual scheduled payments and balance data for each trade line — mortgage, credit card, utilities, etc.
It is a massive amount of data.
"Lenders are receiving 11 times more data compared to the existing static credit report," Crabtree said.
It can be automatically ported into Fannie's automated underwriting process and delivered online to lenders in a printable form.
"It has been out in the marketplace for over 30 days," Crabtree said in an interview Thursday. Financial institutions are ordering the reports, reviewing the data and testing their systems to receive the reports.
But the new credit reports cannot be used until June 25 — when Fannie's trended-data initiative goes live.
"Equifax, TransUnion and Fannie jointly are trying to make it as seamless as possible," Crabtree said.
Meanwhile, Freddie Mac seems to be on the sidelines when it comes to trended data. "We are evaluating it," a spokesman said.
Fannie is also updating its underwriting process to approve loans for borrowers with nontraditional credit histories.
"We have done these kinds of loans for many, many years, but we required manual underwriting by lenders," said Andrew Wilson, a spokesman for Fannie Mae. The credit history is based on the borrower's payment of utilities, rent and other bills.
Lenders will be able to submit these nontraditional loans via Desktop Underwriter, which provides a more efficient approval process.
"It helps lenders reduce costs by automating and streamlining a previously manual and time-consuming underwriting process," Wilson said.
The lender also has more confidence that the loan meets Fannie's underwriting requirements.