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 changes will include the use of:
Trended credit data – Fannie will require lenders to use trended credit data when underwriting single-family borrowers through Desktop Underwriter. The data will be provided by Equifax and TransUnion and allows for a more thorough analysis of a borrower’s credit history, according to Fannie.
Credit reports used in mortgage lending currently only indicate the outstanding balance and if a borrower has been on time or delinquent on existing credit accounts such as credit cards, mortgages or student loans.
With trended credit data, lenders will have access to the monthly payment amounts that a consumer has made on these accounts over time. Among other benefits, this will help lenders determine if a borrower tends to pay off revolving credit lines such as credit cards each month or if the borrower tends to carry a monthly balance while making minimum payments.
Desktop Underwriter provides lenders a comprehensive credit risk assessment that determines whether a loan meets Fannie's eligibility requirements. More than 1,800 lenders use it in their underwriting process.
A TransUnion analysis found that the use of trended data can potentially impact vast numbers of consumers in the housing market through better pricing and access to mortgage loans. TransUnion's research indicates that the percentage of consumers in the Super Prime risk tier, who generally have the greatest access to new loans at the lowest pricing, would increase from 12% of the population to nearly 21%. TransUnion began work on bringing trended credit data to market more than five years ago. The company launched a suite of services called CreditVision in January 2013. TransUnion officials on Monday commended Fannie's decision to use trended credit data. "The use of trended credit data by mortgage lenders has the potential to help millions of people access the opportunities that lead to a better quality of life,” said Jim Peck, TransUnion’s president and chief executive officer. "As a global leader in risk and information solutions, we recognize the importance and benefits of using information for good."New Fannie Mae Connect self-service reporting and data analytics portal for customers and business partners – Fannie later this year will begin offering Fannie Mae Connect, a new tool to streamline and improve the data available to customers and business partners. Fannie Mae Connect will be a one-stop source for users to access data and analytics they need with a single sign-on, replacing multiple legacy systems. Users can customize access and reporting categories, receive email notifications of new reports and provide feedback to Fannie Mae via an online comment box. A beta version of Fannie Mae Connect is currently being tested, and the full system with new reports will be available in November.
Fannie previously announced plans to reduce lenders’ costs and enhance the company’s technology platform, including new capabilities for the EarlyCheck loan quality system and a new loan delivery tool. Fannie Mae will continue to build new tools and improve existing offerings to serve the needs of lenders and help build a more sustainable housing finance system.
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.