Government sponsored enterprise Fannie Mae now attempts to implement a few changes that will help more potential customers, (such as those with a limited credit history) to qualify for a mortgage loan. The enterprise recently announced that it’ll mandate that mortgage lenders to make use of trended credit data for all potential borrowers beginning in the middle of 2016. This transition could assist lenders to identify applicants who could be a lower risk profile than a traditional credit profile actually made them seem.
Right now Fannie Mae uses credit reports that only indicate outstanding balances or current credit accounts for a consumer and whether the borrower has been delinquent or not. Instead, trended credit data evaluates a monthly payment over time, usually two years or more. So a lender will be able to determine if a borrower clears off revolving credit lines each month or carries a balance and makes just larger payments or minimum payments.
The goal is to help lenders serve their customers better so that qualified borrowers can apply for and receive mortgage credit on a much easier basis.
There are also three other concepts in the works, including establishing a data portal for consumers and businesses, validating a borrower’s earnings directly through Fannie Mae’s underwriting engine in 2016, and allowing some borrowers who have nontraditional credit records to accept loans. The process to verify income used by the agency will help to minimize mortgage fraud and lenders will no longer have to ask a borrower to submit pay stubs or other documents to confirm income.
Borrowers will still have to pay their lender for the service, which is currently provided by a third party implement verification company when it comes to Fannie Mae. The most impactful of these changes has to do with the change to trended credit data because this is very popular in the industry today and helps to allow for more accurate risk determinations.
Those who revolve balances are much more risky than those who pay off the balance every month. The data will be provided by Transunion and EquiFax to Fannie Mae and allow for a more accurate analysis of the borrower’s credit history.
This is not a simple thing to do so it takes some time for implementation in the industry, but it will allow for more consumers to boost higher credit scores especially for those individuals seen as having a thin file with a single credit account. Not many details were provided by Fannie Mae about how they intend to reach borrowers with an untraditional credit history and it is expected that more information about this will roll out over time.