Fannie Mae trying to rule in more borderline borrowers
By JEFF LAZERSON / CONTRIBUTING COLUMNIST
Maybe Fannie Mae has a better idea about credit analysis and predictive modeling as it incorporates trended data into its mortgage credit decision engine named Desktop Underwriter or DU starting June 25th.
So, what’s the big idea? Try to rule more borderline borrowers in.
In addition, Fannie is going to consider how you’ve managed your credit cards over the last 24 months. Revolvers are those that pay the minimum required monthly payment. Transactors are those that pay-off their balances every month. Transactors are viewed as less risky.
Why not just credit scores?
“Fannie Mae uses (FICO) credit scores as part of its initial screening. DU has its own credit assessment. We built our own model,” said Andrew Wilson, Fannie Mae spokesman. Adding trended data is one of many considerations in Fannie Mae’s credit assessment.
I’ve taken in more than 7,500 loan applications in my career. I’m a believer, at least conceptually.
Most habitual cash-out borrowers (we call them serial refiers) are those who not only carry a lot of credit debt but tred into installment debt like auto loans, and grow that debt.
Some are able to manage, regardless. Some tap what would have been their inheritance. Others end up selling or losing their homes.
Credit card assessment “is the first step in trended credit data only for now,” said Mindy Armstrong, senior product manager at Fannie.
Credit bureaus Trans Union and Equifax are going to hard weld trended credit data into their residential mortgage credit reports. Experian has been telling me since last fall when I first wrote about this that they are onboard, but they still will not provide a delivery date.
How much will this cost? My company’s credit reseller charges just over $13 for a single report and just over $22 for a married couple, excluding trended data.
Stan Baldwin, COO of Garden Grove-based Informative Research estimates a 20 percent increased cost for a credit report.
In 2015, Fannie Mae provided 27 percent of all residential mortgages, according to John Bancroft, executive editor of Inside Mortgage Finance.
Freddie Mac and the Veteran’s Administration are thinking about trended data. FHA makes announcements when it’s going to do something.
Why only Fannie?
“You’d have to ask them why they are behind the curve,” said Wilson.
Equifax and Transunion explained they will only offer trended credit data credit reports. There will be no toggle switch for the credit resellers to order or not when the resellers provide the data to mortgage loan originators.
“Those that don’t need it, don’t need it. That’s why it’s an unfair business practice and a possible anti-trust violation,” said Max Blecher, Los Angeles based anti-trust attorney at Blecher, Collins Pepperman & Joye.
The fact that more borrowers will start consciously thinking about this new credit worthiness measurement is a good thing that may lead to more responsible budgeting. Let’s face it, though. It’s really only needed to evaluate boarder line borrowers.
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Jeff Lazerson - Mortgage Columnist since 2011