Fannie Mae plans to make several changes that could help more consumers, including those with little credit history, qualify for a home loan.
Fannie announced Monday that it will require mortgage lenders to use so-called trended credit data for all mortgage borrowers starting in mid-2016. The move could help lenders spot applicants who might be less risky than traditional credit profiles would have made them appear.
Currently Fannie uses credit reports that only show a consumer’s outstanding balance on existing credit accounts and whether the borrower has paid on time or has been delinquent. By comparison, trended credit data shows monthly payment amounts over time, typically two years or longer. So a lender can determine if a borrower pays off revolving credit lines each month or carries a balance and makes minimum or larger monthly payments.
“Our aim is to help lenders serve their customers efficiently so that more qualified borrowers have access to mortgage credit,” Fannie Chief Executive Timothy Mayopoulos said in a press release.
The government sponsored enterprise plans three other initiatives:
- Fannie's automated underwriting engine will be able to accept loans some time in 2016 from borrowers who have nontraditional credit records. Currently, lenders have to manually underwrite such “thin file” borrowers.
- It is creating a data and analytics portal for consumers and businesses that will debut later this year.
- Lenders will be able to validate a borrower’s income directly through Fannie’s underwriting engine starting in 2016.
That income-verification process will reduce mortgage fraud, Fannie said, and lenders will no longer have to ask a borrower to provide copies of pay stubs or other documents to verify income. Still, borrowers typically are charged by their lender for the service, which is provided to Fannie by Equifax’s The Work Number, a third-party employment verification company.
The biggest of Fannie's various changes is the switch to trended credit data, which is “all the rage now,” said John Ulzheimer, a credit expert and president of the Ulzheimer Group. Trended credit data, also known as time-series data, turns a relatively flat credit report “into something deeper,” Ulzheimer said.
It helps provide more precise risk determinations, he explained. “Those who revolve [balances] are several times riskier than those who pay in full each month,” Ulzheimer said.
The data will be provided to Fannie by Equifax and TransUnion, which both introduced trended credit data products in 2013. Fannie said it “allows a smarter, more thorough analysis of the borrower’s credit history.”
Steve Chaouki, the head of TransUnion’s financial services group, said many systems could not accommodate the massive amount of trended credit data until now.
“It’s not an easy thing to do and requires a lot of computing horsepower,” Chaouki said.
Trended credit will allow more consumers to generate higher credit scores, he said. Roughly three million “thin file” consumers, who may only have one credit account, could now potentially rank as prime or super-prime borrowers, he said. Such borrowers potentially could have better access to loans at better rates.
Fannie did not provide much information about its efforts to serve borrowers who do not have a traditional credit history. Currently, lenders have to manually underwrite “thin file” borrowers. Fannie said it will provide guidance to lenders on its new capability in the coming months.