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Being able to predict whether or not a consumer will pay his or her mortgage loan on time and in full is the key concept behind credit scoring. The Fannie Mae announcement about trended data being added to mortgage credit reports for the underwriting process is causing a shift in the entire industry, and will change the way consumers are viewed by the underwriting system.
This is a big deal, and is going to cause a shakeup in the mortgage lending world for sure. Before you climb under your desk and yell "I can't take anymore after the TRID changes!" don’t despair, we have you covered! Read on for 10 crucial points to understand about the addition of mortgage trended data, why you should care, and how you can be prepared for the change.
1. You need to know the definition of trended data
Fannie Mae recently shared their definition of trended data: “An enhanced credit report with new, valuable data fields, including Actual Payment Amount, and up to 30 months of detailed account history for each trade line.” The way credit reports show information now is in a snap shot format. Basically, when a report is pulled, the current balance, last payment, and minimum payment show up on the report. This scenario does nothing to account for the people who charge on their credit cards all month, and then pay the balance in full.
2. Fannie Mae’s announcement about trended data
This data allows a smarter, more thorough analysis of the borrower’s credit history. Currently, as we mentioned above, credit reports used in mortgage lending only indicate the outstanding balance and if a borrower has been on time or delinquent on existing credit accounts. With trended credit data, lenders will have access to the monthly payment amounts that a consumer has made on these accounts over time. Among other benefits, this will allow lenders to determine if the borrower tends to pay off revolving credit lines, such as credit cards each month, or if the borrower tends to carry a balance from month-to-month, while making minimum or other payments. By understanding the borrower’s payment trends, the underwriting process can be more predictive of who is prepared for a mortgage loan. For example, with all other aspects of the loan being equal, research has shown that borrowers who pay off their credit cards every month are 60 percent less likely to become delinquent than borrowers who only make minimum payments each month. Desktop Underwriter will be updated to utilize this trended credit data, and Fannie Mae will provide additional guidance to lenders in the coming months.
3. Only two of the three credit bureaus are currently on board
TransUnion and Equifax are the only repositories set up at this time to supply mortgage trended data in the beginning of the rollout. Experian could possibly offer it at a future date, however, there has been no announcement at this point as to a timeline of if or when that will happen. Both bureaus offering trended data have given their product specific names. TransUnion has named their mortgage trended data product “Credit Vision,” and Equifax is calling theirs “Acrofile.”
4. Trended data cannot be used in lending decisions during the test phase
Although a hyperlink connecting to trended data will be accessible from the mortgage credit reports the first part of March 2016, this is a test timeframe. According to Equifax, in the March-June period, lenders are prohibited from using trended data in mortgage lending decisions. While it is visible, it doesn’t need to impact the loan decision in any way until Fannie Mae “blesses it.”
5. The way you order credit reports won't change
Good news! While the information may look different, the process of pulling a credit report is not. Mortgage professionals will be able to access and order credit reports in the normal manner. Ordering mortgage credit reports will be conducted as always, either through the online ordering platform, through your DU system or your LOS system.
6. The guideline for how exactly trended data affects underwriting has not been announced yet
As of now, Fannie Mae hasn't shared specifically how mortgage trended data will be scored or impact the underwriting process. Trended credit data will be included as part of the Fannie Mae loan review with the DU 10.0 release in June 2016. The FICO credit scoring model currently does not incorporate trended data into their scoring system, and there have been no announcements about adding it into credit scoring formulations.
7. Not all trade lines will show trended data
The new trended credit data information will not show on certain account types. Authorized user accounts, public records, and accounts with less than six months of credit history are examples of accounts that will not show trended data. On the trade lines that show mortgage trended data, the key enhancements are that each trade line will detail actual payments broken out monthly for up to 30 months.
The new, mortgage trended data credit report is expected to improve chances of “transactor” applicants securing a mortgage. The premise behind this is, if a person is paying off their credit cards each month, they bring less risk than applicants who carry a balance, or only make the minimum monthly payment. However, applicants who only make the monthly payments on their revolving accounts will experience no further negative impact on their chances to buy a home than they ever have.
8. Mortgage credit reports will change only slightly in their layout
Within the credit report, there was an original plan of offering a link to the trended data. This has recently changed, so that now, we are expecting that all trended data will show up on the main credit report. This view may vary slightly, depending on the vendor mortgage professionals use to pull credit.
9. This change is coming in June 2016
In October of 2015, Fannie Mae announced the change will go into effect the weekend of June 25. However, with testing processes and implementation still underway, this time frame could change. It is important for all mortgage professionals to follow all the updates from Fannie and the bureaus. At this time, FHA and VA loans will not be utilizing mortgage trended data. Lenders won’t see the updated guidelines on their FHA or VA loan case files.
10. These changes will most likely impact mortgage credit report costs
Both bureaus supplying mortgage trended data have announced price increases in regards to this more fleshed out, robust report.
The Fannie Mae announcement about trended data has shaken up the industry, and will change the way consumers are analyzed in future lending decisions. There will definitely be a learning curve in reviewing and translating the new information on mortgage trended data credit reports. By staying on top of breaking information, you will be well-prepared and ready to handle this shift without hindering your productivity or progress in making certain your clients are well-served.
Keep in mind that this change is a positive shift and helps empower mortgage professionals to serve their clients better, and offer more people the ability to be approved for a mortgage loan.
Julie Wink joined Data Facts in 1995, and in 2005, became the firm’s executive vice president and partner. Julie she has served on numerous boards of directors, including the National Credit Reporting Association (NCRA) in the roles of treasurer, chairperson of the Education and Compliance Committee, and presently as the association’s vice president.
This article originally appeared in the May 2016 print edition of National Mortgage Professional Magazine.