Freddie Mac expands income data for underwriting

Freddie Mac's automated income assessment tool will soon be able to analyze a borrower's pay stub data.

The new capability in Freddie's underwriting system aims to help lenders calculate income faster and in a more precise manner, per an announcement by the government sponsored enterprise Monday.

The initiative, available on June 7, builds on both Freddie's and Fannie Mae's recent push to expand access to credit to first-time homebuyers and borrowers in underserved communities. 

"Over the last year, we've consistently rolled out innovations to ensure our digital tools are improving speed and efficiency, reducing risk and, ultimately, helping us serve our mission by reaching more qualified borrowers," said Kevin Kauffman, single-family vice president of seller engagement at Freddie Mac, in a written statement. "Today's innovation further automates income assessment by using historical direct deposit pay patterns and current gross income from recent pay stubs, which can help more families achieve homeownership."

Relying on a plethora of data points can widen the pool of borrowers, helping those "who may not qualify with traditional methods of underwriting," Freddie's press release added.

The agency noted that loans originated using its underwriting system were four times less likely to produce defects than loans without these technology offerings. "That's vitally important because income verification issues account for nearly one-third of all purchase transaction defects," the agency said.

Previously, both Freddie and Fannie Mae announced that they would accept loans for automated underwriting based on a borrower's 12 months of on-time rental payments, while in mid-2022, Fannie also deployed a pilot program to encourage multifamily owners to share renters' on-time payment data,in a bid to build credit among prospective homebuyers.