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Fannie Mae Updates Underwriting To Help 'Credit Invisible' Borrowers

David Krechevsky
Dec 06, 2022
Fannie Mae has announced that it will issue a request for proposals to hire an underwriting financial advisor who will assist in developing and implementing a plan for recapitalizing and ending its conservatorship

Enhancement to Desktop Underwriter system intended to support loans when borrower has no credit score.

  • Nearly 15% of Black and Latino/Hispanic people are credit invisible vs. 9% of whites and Asians.

Describing millions of people in the U.S. as “credit invisible,” Fannie Mae said Tuesday it will enhance its automated underwriting system to help expand eligibility and simplify the borrowing process for homebuyers who don’t have a credit score.

The enhancements “will help historically underserved borrowers access credit and further support the company’s commitment to serving renters and homeowners in an equitable and sustainable way,” the government-sponsored enterprise (GSE) said.

Starting mid-December, the enhancements to Fannie Mae’s Desktop Underwriter (DU) will provide new benefits to borrowers with no credit score and the lenders who serve them. The new enhancements will:  

  • Update the eligibility criteria for loans in which no borrower has a credit score to align with Fannie Mae’s standard Selling Guide requirements, which may help more borrowers qualify for a home loan.
  • Enable an evaluation of a borrower’s monthly cash flow over a 12-month period to potentially enhance their credit risk assessment, and
  • Simplify the mortgage process by automating the current Selling Guide policy requirement to document nontraditional sources of credit

Nearly 15% of Black and Latino/Hispanic people are credit invisible, compared to 9% of whites and Asians, according to the Consumer Financial Protection Bureau (CFPB). The imbalance reinforces racial disparities in access to credit and quality affordable housing among consumers, Fannie Mae said.

“We believe consumers should benefit from their responsible money-management habits and a steady stream of income when buying a home, even if they don’t have an established credit history,” said Malloy Evans, executive vice president and head of Single-Family Business at Fannie Mae. “Traditional lending practices make it hard for borrowers with no credit score to access credit, so we’ve taken steps that may help them responsibly qualify for a home loan using data that provides a more holistic view of how they manage their money.”

For years, checking, savings, and investment account data have helped mortgage lenders verify borrower assets and make responsible lending decisions, Fannie Mae said. This data can also provide a more comprehensive view into a borrower’s financial health that can help enhance the credit assessment as part of the lender’s underwriting decision. 

Fannie Mae said its preliminary research has found that assessing a borrower’s cash flow activity through bank statement data can make more predictive risk assessments, especially for consumers with no or limited credit history.

The enhancements to DU are the next step in its efforts to create a more inclusive and equitable homebuying process, the GSE said.

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