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New credit check tool could make loans easier to get

New credit check tool could make loans easier to get

Imagine a world in which lenders take a deeper look to see if would-be borrowers qualify for a mortgage rather than the quickie snapshots now used.

It’s about to become reality within the next nine months and could mean that many millennials, middle-income homebuyers and others with borderline credit might find it easier to get a mortgage at more favorable terms.

Fannie Mae unveiled a new credit check tool, dubbed “trended credit data,” earlier this month at the Mortgage Bankers Association conference in San Diego, which I attended.

This is my second report on things I learned at the MBA meeting and at the National Association of Mortgage Professionals convention held at the Luxor Hotel in Las Vegas.

Starting in mid-2016, Fannie Mae will require lenders to use “trended credit data” when using Fannie’s automated underwriting engine known as Desktop Underwriter. That’s the tool Fannie provides to tell lenders quickly if a borrower qualifies for one of its loans.

The big idea is to start considering borrower behavior for the previous 24 months. Transaction-oriented borrowers (those who pay off their credit cards monthly) are less risky than revolvers (those that carry a balance each month).

Equifax and Trans Union are on board. Experian plans to work with Fannie Mae to implement its trended solutions product as well.

It is a great idea to give credit management focus and consideration. But it’s not clear exactly what the benefits Fannie Mae will offer consumers in terms of qualifying considerations.

Credit expert John Ulzheimer told the New York Times that use of trended data will lead to smarter mortgage lending, because it will help lenders more precisely link pricing to risk. But, he told the Times, it also could mean some borrowers will do worse.

Then there’s the matter of cost.

“It may cost more, but (the increase) might not be significant,” said Fannie Mae spokesman Andrew Wilson. Residential mortgage credit reports today run in the $ 25 range.

More news from Las Vegas: An investor is funding loans with multiple housing credit events that make sense. If I have a borrower with a foreclosure some years ago and a very recently discharged Chapter 7 bankruptcy, the lender said they will do that loan.

How about a no-cost mortgage payment protection plan for involuntary unemployment? One mortgage insurance company is offering up to six monthly payments if you get your mortgage insurance with them-covering loans up to 97 percent loan-to-value.

Instead of big investor groups dictating what they will buy, lenders are getting back to the days of understanding consumer needs and facilitating those needs when it comes to home loans outside of the traditional Fannie-Freddie box.

“We (lenders) are creating guidelines and sending them to private equity firms,” said Brenda Usher, chief operating officer at Land Home Financial Services.

Refreshing indeed!

Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or lazerson@mortgagegrader.com. Twitter: @mortgagegrader_

The Orange County Register – News Headlines : Real Estate News