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Freddie Mac To Include Cash-Flow Data In Underwriting

David Krechevsky
Oct 18, 2022
Freddie Mac announced that its Credit Risk Transfer (CRT) program transferred approximately $2.5 billion of credit risk on $69 billion of single-family mortgages from taxpayers to the private sector during the third quarter of this year

Says industry-first capability will help lenders qualify more first-time and underserved borrowers.

  • Innovation will be available beginning Nov. 6.
  • The intent of identifying a history of positive monthly cash-flow activity as part of its technology’s loan purchase eligibility assessments is to increase homeownership opportunities.

Freddie Mac said Monday it will soon include bank account cash-flow data when it reviews a borrower’s eligibility for a purchase loan.

The government-sponsored enterprise said this industry-first innovation will be available to mortgage lenders nationwide through its automated underwriting system, Loan Product Advisor (LPA), beginning Nov. 6.

The intent of identifying a history of positive monthly cash-flow activity as part of its technology’s loan purchase eligibility assessments is to increase homeownership opportunities, it said.

“With the addition of positive monthly cash-flow data, our underwriting system can help with more accurately predicting a borrower’s ability to pay their mortgage, because it uses a comprehensive view of how personal finances are managed over time,” said Terri Merlino, Freddie Mac Single-Family senior vice president and chief credit officer. “Our latest innovation levels the playing field and helps make homes more accessible to borrowers whose lenders might not have qualified them with traditional methods of underwriting. This should particularly help first-time homebuyers and underserved communities.”

With the borrower’s permission, lenders and brokers can submit financial account data for LPA to identify 12 or more months of cash-flow activity to include in the tool’s risk assessment, Freddie Mac said. Data can be obtained from checking, savings, and investment accounts, including those used for direct deposit of income and monthly bill payments, such as rent, utilities, and auto loans. 

The account data submitted can only positively affect the borrower’s credit risk assessment, Freddie Mac said. To help identify opportunities, LPA will notify lenders when submitting this additional account data could benefit a borrower.

Lenders and brokers can obtain the financial account data from designated third-party service providers using the same automated process they currently use to verify assets, income (using direct deposit), employment, and on-time rent payments via a single report through LPA’s asset and income modeler (AIM), Freddie Mac said.

“Working alongside our industry partners, we have made significant progress toward modernizing the mortgage origination process,” said Kevin Kauffman, Freddie Mac Single-Family vice president of client engagement. “In the current market, our latest industry-leading innovation delivers lender efficiencies that can lead to cost savings and improvements to the borrower experience, while meeting Freddie Mac’s strong credit underwriting standards.”

Initial service providers supporting Freddie Mac’s LPA borrower cash-flow assessment include Blend, Finicity (a MasterCard company), FormFree, and PointServ. 

Freddie Mac first began using automated underwriting capabilities in June, stating that its asset and income modeler (AIM) in LPA would allow lenders to verify assets, income, and employment using borrower-approved bank account data. 

To learn more, visit the AIM webpage.

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