Lenders and borrowers to benefit from risk assessments with trended credit data
Incorporating payment data could help reduce lender risk and increase borrower control over credit history
Fannie Mae will begin including trended credit data in their next release of Desktop Underwriter® (DU®). This data provides up to 24 months of a borrower’s payment history — including scheduled payments, actual payments and past balances. It’s a look back, but it offers a view into the future: Trended credit data patterns can be used to help predict a borrower’s future behavior.
“Trended credit data provides the ability to see how a consumer’s credit activity is evolving over time, giving insights into behaviors and patterns that can help lenders make stronger, more confident lending decisions. Predicting future borrower behavior can significantly mitigate lender risk,” says Craig Crabtree, General Manager of Equifax Mortgage Services.
It could be good for consumers, too, he notes. Crabtree points to Fannie Mae research showing that when trended credit data is added to a credit risk assessment, a creditworthy borrower can gain greater access to mortgage credit. Giving weight to how borrowers pay off debt also puts more power in the consumers’ hands to control their credit evaluation.
The idea of incorporating trended credit data into Fannie Mae’s credit risk assessment tool began as a response to the tighter mortgage lending standards that followed the financial crisis. In recent years, Fannie Mae began to analyze the payment behavior of consumers as it looked for ways to bring the credit lending industry back to a more normal — yet safer — environment.
In 2015, Fannie Mae worked with credit reporting agencies to conduct modeling and analytics on 3.7 million credit reports with trended credit data (dated June 2009 through August 2012). The goal was to assess whether adding the additional data affected Desktop Underwriter’s performance. The results showed that adding trended credit data helped materially improve modeling of loan performance. Based on that finding, Fannie Mae decided to include trended data in the consumer credit reports used for its DU Version 10.0. Once DU 10.0 is released, all tri-merge consumer credit reports will include trended credit data from participating credit bureaus.
“The expanded data will provide mortgage lenders with additional insights because it enables more advanced analytics,” Crabtree says. “Ultimately, trended credit data helps lenders more accurately assess borrower risk.”
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