Fannie Mae to offer greater borrower insights by adding trended credit data to its mortgage risk assessment tool
Data expansion designed to help benefit both lenders and consumers — and marks the first major change to credit data used for mortgage underwriting in a quarter century.
A consumer’s credit report has evolved over time as an objective tool for risk assessment. But behind every credit report is a person. And that person, let’s call her Maria, might have a large credit card balance that she pays in full every month. Another person with a similar credit report or score, let’s call him John, might make every monthly credit card payment on time, yet only pays the minimum due.
For a mortgage lender, Maria may be the less risky borrower (considering all other things equal), but existing credit reports don’t differentiate between Maria and John. That’s about to change. For the first time, trended credit data — a new, broader approach to assessing creditworthiness — will be incorporated into Fannie Mae’s credit risk assessment tool. Its addition will offer mortgage lenders greater insight into borrowers’ behaviors and patterns. Armed with that information, it can help lenders make stronger, more confident lending decisions.
Trended credit data draws on up to 24 months of a borrower’s payment history to provide a historical perspective of behavior – including scheduled payments, actual payments and past balances. This two-year granular view can supply meaningful statistics to help future credit and lending decisions.
Equifax is a pioneer in the development of trended credit data. Equifax began to conduct internal studies on “transactor” vs. “revolver” payment trends and introduced trended credit data to the market in 2014 in order to provide more relevant and actionable consumer information and help do its part in bringing the credit lending industry back to a more stable, safer environment. Understanding that the GSE’s and their customers could benefit from a better data methodology to assess payment behavior on a more granular basis, Equifax shared these studies with Fannie Mae in an effort to further delve into the concept of trended credit data.
Fannie Mae took this analysis into consideration and decided to include trended credit data in the consumer tri-merge credit reports used for its next release of Desktop Underwriter® (DU®) Version 10.0.
It will be the first widespread use of trended credit data in the mortgage lending industry, as well as the first significant change to credit data used in mortgage underwriting in nearly 25 years. Both consumers and lenders will reap the benefits.
“With this dramatic step, Fannie Mae is helping to make the home mortgage market smarter, safer, and open to more consumers,” says Craig Crabtree, General Manager of Equifax Mortgage Services. “Increasing the use of trended credit data will help improve lenders’ evaluation of risk, and it will help reward consumers for their responsible use of credit.”
According to Fannie Mae, the use of trended credit data in Desktop Underwriter’s credit risk assessment should help increase creditworthy borrowers’ access to mortgage credit. Giving weight to how borrowers pay off debt puts more power in consumers’ hands to control their credit evaluation.
For lenders, DU’s credit risk assessment enhanced with trended credit data should help bolster their ability to make mortgage loans with more confidence. Trended credit data offers a data-driven window into a prospective borrower’s potential future behavior. Lenders will be able to see how credit activity has evolved over time and use those insights to help better evaluate risk.
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