Or, what Fannie Mae is up to, and how it affects you.
Come September Fannie Mae's underwriting is adopting Trended Data. Last October Fannie's website headlined, "Fannie Mae Announces Innovations for Lenders, Borrowers.' Trended data is a detailed history of a consumer's spending and credit habits over 24-30 months. Although Fannie Mae is only involved after a loan is closed, it could seep into qualifying practices. Consumers need to know that they might not have the option of a quick fix repairing credit.
Credit cards have long used Trended Credit to extend, raise, lower credit limits, and interest rates. Where it could affect a consumer is if they are building or repairing credit. It's not just a credit score anymore. Currently, FICO credit reports used by lenders indicate an account balance, and whether payments are ontime. The change is that with trended credit, lenders have access to the amount of monthly payments, if those are minimum payments, how long it takes to pay off the balance as a risk assessment tool.
Fannie Mae's website touts that data provided by Equifax and TransUnion allows a smarter, more thorough analysis of the borrower's credit history. They go further saying that their automated Desktop Underwriter will streamline the process. Sure it will.
Some lenders believe that there will be no difference, others do. For example, a buyer who has rough
credit is working diligently to pay off collections,and pay down balances. He/she is hoping for a rapid rescore to qualify for a mortgage within 30-60 days. Trended credit whips back the curtian on payments for the last 24 months including when, how much, and long term credit habits. If the customer is making minimum payments and carrying a high balance for several months, they are rated riskier than the borrower who pays it all off each month.
The buyer who has bad or no credit will need a longer timeframe to be credit worthy by the Desktop Underwriter. Most of us have been through automated underwriting. We are well aware of it's short comings, like common sense. There is no such thing as "push button, get mortgage." I understand that the change is the burden of a lender who sells a loan to Fannie after the loan closes, but how many rejected loans will it take before they have to tighten up? There is a lot of political finger pointing about discrimination in lending. Is this going to help? Easy lending died with the Recession. The loan process is already akin to a colonoscopy, rewarding those who have high scores, long histories of careful spending, and massive documentation at their finger tips. That's not the average first time buyer, or minorities who have no clue how credit works.
Buyers are going to need more credit education in advance of making plans to purchase. Rules of credit are changing, and it's not getting easier. Please don't tell the media, we know what will happen.