In October of 2015, Fannie Mae announced a number of changes to the mortgage process. Among those changes was the use of trended credit data in a borrower’s credit report. This data is intended to give a lender a clearer picture of a potential borrower’s debt repayment process and history. Set to roll out in June of 2016, the goal of Fannie Mae’s innovation is to reduce lending risk while making mortgages available to more people.
What Is It?
Used by both Equifax and TransUnion, trended credit data provides a comprehensive record of a borrower’s payment history. The information from Equifax covers 24 months’ worth of payments while the information from TransUnion covers 30 months’ worth. A lender will be able to see the actual balance on a borrower’s account for each month listed. They’ll also be able to see the amount he or she paid that month and the expected payment amount. The method currently used when compiling credit reports for mortgages only shows whether a person is paying the amount agreed upon or not as well as the balance on an account.
What This Means for Borrowers
Trended credit data should be a good thing for many would-be borrowers. A study conducted by TransUnion found that using the new scoring system should increase the number of eligible borrowers. The study predicts that an additional 23 million people will be rated as super prime with the new scoring system. This is an increase of 9% (when compared to the traditional scoring method). TransUnion’s study also found that the new system allows an additional 26 million people to be scored and that around 3 million of the previously unscored would be rated as prime or super prime borrowers.
Super prime borrowers are likely to get the best rates on a mortgage, reducing the amount they need to pay over time. Prime borrowers pay slightly higher interest rates, but their rates are still lower than those paid by sub-prime borrowers.
What This Means for Lenders
The new data helps lenders as well. Under the previous method, a lender received little detailed information about a consumer. When looking at an old mortgage credit report— lenders could see if a borrower paid on time or not, but not how much the borrower was actually paying. There was no way to differentiate between the consumers who could afford to pay off their revolving accounts and those who either charged more than they could pay off or didn’t want to pay their debts in full. A consumer who paid just the minimum each month could still rate highly under the previous method, even if he or she was spending a lot.
Although the new rules don’t go into effect until June, it’s not too early to see if you can get prequalified for a mortgage. Contact a mortgage specialist at BrightPath Mortgage today to learn more about the mortgage prequalification and application process.