Changes to Credit Underwriting with Fannie Mae
Fannie Mae (not Freddie Mac, yet) has rolled out Desktop Underwriter (DU) 10.0. Will it help Nations Lending’s borrowers by providing wider credit opportunities for borrowers who may not have been approved through the previous version of DU?
The changes will apply to new loan case files submitted to DU Version 10.0 starting this week. Lenders must begin using trended credit data when underwriting single-family borrowers, and Fannie Mae is working with Equifax and TransUnion to provide the data.
The new version will have a newly automated credit decision process for borrowers with no credit scores, i.e., non-traditional credit. Nations Lending Mortgage Advisors and underwriters know that if mortgage applicants did not have enough traditional credit to generate credit scores, lenders could still manually underwrite and decide on those would-be borrowers. But currently few lenders do any manual underwriting for fear of missing something that the automated process detects and having to repurchase the loan later from Fannie Mae if it did not meet underwriting standards.
In the new version, the “trended” credit data will be used by the DU risk assessment to evaluate how the borrower manages their revolving credit card accounts. A borrower who uses revolving accounts conservatively (low revolving credit utilization and/or regular payoff of revolving balance) will be considered a lower risk. At the other end of the scale, a borrower whose revolving credit utilization is high and/or who makes only the minimum monthly payment each month will be considered higher risk. So this will help Nations Lending’s borrowers that pay their bills off every month.
Traditional DU is likely better if our client has a no-score approval because it goes off the actual credit scores. Non-traditional DU assumes the worst credit score bucket of 620-639, offering the most expensive pricing. And the credit data being added to residential mortgage credit report gives consideration to borrowers who pay their credit card balances off each month.
Desktop Underwriter 10.0 enhancements from Fannie Mae:
Use of Trended Credit Data in Credit Risk Assessment
- Considers the monthly payment amounts that a consumer has made on revolving accounts, such as credit cards, over the past two years.
- Offers lenders more insight into how a borrower tends to pay off their revolving credit lines each month, providing a more comprehensive risk assessment.
- Gives borrowers greater ability to control their credit evaluation, and benefits borrowers who regularly pay off, or pay more than the minimum required amount, of their revolving debt, increasing the likelihood that they will receive an “Approve” recommendation from DU.
Automated Underwriting for Borrowers with No Traditional Credit
- Helps lenders more efficiently serve borrowers who do not have a traditional credit history.
- Helps lenders reduce costs by automating and streamlining a previously manual and time-consuming underwriting process.
- Requires verification of at least two nontraditional credit sources, one of which must be housing-related.
Automated Underwriting for Borrowers with Multiple Financed Properties
- Provides lenders with a simplified multiple financed properties policy.
- Simplifies the underwriting process for lenders and improves operational efficiency.
- Helps ensure fewer eligibility overlays, automates remaining eligibility requirements, and determines required reserves for all financed properties.
Current our future clients should speak to a Nations Lending Mortgage Advisor about the new credit reports!