WASHINGTON — Fannie Mae employees will be working this weekend to update the agency's automated underwriting machine to process trended data for the first time.
Trended data, which allows underwriters a deeper dive into a consumer's credit history, has been used by the credit card and other finance companies for many years. But it has not yet been widely adopted by the mortgage industry.
As new loan case files are created on and after Sept. 24, the resulting loans will be evaluated via Desktop Underwriter 10.0 with trended data from TransUnion and Equifax. Prior loan cases will be processed via the older model.
Trended data will give Fannie Mae and its lenders a 24-month history of a borrower's credit payments. It can also show more insight, such as what customers make just a minimum credit card payment versus those who pay their full balance each month.
"Borrowers who pay off their credit card balance are 60% less likely to become delinquent than those who make a minimum payment each month. That is what our research has shown," said Mindy Armstrong, the production manager for Desktop Underwriter.
Standard credit reports only show how many times a borrower has missed a payment in the last 12 to 24 months.
Meanwhile, mortgage lenders have been getting ready for the new Desktop Underwriter for some time and they have been receiving credit reports with trended data since April 1.
The Desktop Underwriter 10.0 was originally slated to go live June 25. But after problems arose during the testing phase, Fannie decided to push the date back until the last week of September.
"This is a seismic event in the world of mortgage underwriting," said John Ulzheimer, a credit expert and president of the Ulzheimer Group in Atlanta. "It will go a long way in helping to determine who really should be getting mortgages — especially people who are close to the margin and too risky."
Borrowers who might have been approved prior to the conversion to DU 10.0 might be re-priced or perhaps denied, he said. And those who would barely have missed the minimum requirements to be approved may now well pass because their usage of credit cards — per the trended data — indicates that they are not as risky as they initially appeared.
Ulzheimer, who previously worked at Fair Isaac & Co. and Equifax, also noted that FICO and VantageScore Solutions don't consider trended data in determining a borrower's credit score.
"The information from trended data is so predictive," he said. "I would expect the next generation of credit scores will consider trended data."
