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Fannie Mae lowers mortgage risk with new credit scoring system

Trended data expands credit box for consumers

Fannie Mae is simplifying the lending process for lenders and borrowers with a series of updates to its mortgage offerings.

One of the biggest changes is that beginning in mid-2016, Fannie Mae will require lenders to use trended credit data when underwriting single-family borrowers through Desktop Underwriter. Fannie is working with Equifax and TransUnion to provide the data.

As it stands, credit reports used in mortgage lending 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.  

Through trended credit data, lenders can access the monthly payment amounts that a consumer has made on these accounts over time. 

“With these two dramatic steps, Fannie Mae is helping to make the home mortgage market smarter, safer, and open to more consumers,” said Craig Crabtree, general manager of Equifax Mortgage Services. “Increasing the use of trended data will help improve the evaluation of risk and reward the responsible use of credit, while incorporating Equifax verification services will help streamline the underwriting process.”

Equifax explained that trended data expands the credit information used for evaluating a home loan applicant, adding a more dynamic two-year picture of the applicant’s history managing revolving accounts.

“For some consumers who don’t have a large amount of available credit, but pay their balances every month, trended data may potentially improve their ability to obtain a mortgage by providing lenders with a more complete picture of their credit behavior over time,” Crabtree said.

TransUnion added that after a recent analysis, it 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 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%.

“Fannie Mae wants to be the partner of choice for lenders. Our aim is to help lenders serve their customers efficiently so that more qualified borrowers have access to mortgage credit,” said Timothy Mayopoulos, president and CEO of Fannie Mae.

“We are enhancing our offerings, improving our tools and innovating through the technology we provide to our customers. Our goal is to make sustainable homeownership a reality in communities across the country while reducing risk for taxpayers,” he added.

Click the next page for the other three new mortgage initiatives from Fannie. 

Nontraditional credit history in Desktop Underwriter:

Currently, Fannie Mae requires lenders to use a manual process to underwrite loans made to these borrowers. 

However, Fannie Mae is building a new capability through its Desktop Underwriter automated underwriting system to help lenders more efficiently serve borrowers who do not have a traditional credit history

Fannie Mae will provide guidance to lenders about this new capability in the coming months, and anticipates that the new functionality will be available in 2016.

New Fannie Mae Connect self-service reporting and data analytics portal for customers and business partners:

Fannie Mae Connect is a new tool to streamline and improve the data available to customers and business partners that will launch later this year. 

The new tool 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 their 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.

Data validation available in Desktop Underwriter

In 2016, Fannie Mae will offer data validation services to help lenders originate loans with greater simplicity and certainty.

Instead of requiring a borrower to provide copies of pay stubs or other documents to verify income, lenders will be able to validate income through Desktop Underwriter with data provided by Equifax’s The Work Number.

Moving forward, Fannie Mae said will determine if validation services can be offered in the future for additional borrower data, such as bank statements, and additional income documents, such as tax returns.

Additionally, Fannie Mae said it continues to work to transfer credit risk, reducing the potential for losses and bringing private capital into the market.

By the end of 2015, Fannie Mae anticipates it will have transferred a portion of the credit risk on approximately half a trillion dollars in single-family mortgages.

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