Unless you have been living on a deserted island, chilling in a bomb shelter, or just woke from a coma, you have heard about the implementation of trended data into mortgage credit reports, which is coming June 25, 2016.
Mortgage trended data is an enormous change in the mortgage industry, with Fannie Mae blessing new data that is going to be included on consumers' credit reports and used in underwriting loan decisions.
Here are some Frequently Asked Questions compiled by Fannie Mae to clear up some of the most commonly-mentioned topics on mortgage trended data.
Q: Will the changes made in DU Version 10.0 impact DU Version 9.3 loan casefiles created prior to the weekend of June 25, 2016, and re-underwritten after the weekend of June 25?
A: No. The changes made with DU Version 10.0 will not impact DU Version 9.3 loan casefiles that are reunderwritten after the weekend of June 25. Q2.
Q: Do any of the changes made in DU Version 10.0 apply to FHA or VA loan casefiles underwritten through DU?
A: No. The DU Version 10.0 updates only impact conventional loans, not FHA or VA loans underwritten through DU for Government Loans. Lenders will not see the updated guidelines or messages on their FHA or VA loan casefiles.
Q: What is trended credit data?
A: It is data that provides historical information on the balance, scheduled payment, and actual payment made each month. NOTE: Trended data will only be seen on those accounts on which the creditor reported the data, so it may not be seen on all accounts, and may be missing for months for which the data was not provided. The DU risk assessment will only use the trended data on revolving credit card accounts and only for the most recent 24 months. Fannie Mae used 3.7 million credit reports with trended data to conduct modeling and analytics to support a comprehensive review and redevelopment of DU’s credit risk assessment. Including trended data materially improved modeling of loan performance.
Q: When will trended credit data be required by Fannie Mae for loans underwritten through DU?
A: The credit report provided for all DU Version 10.0 loan casefile submissions must be the version of the credit report that supports the inclusion of trended credit data. When the expected version is not provided, DU will issue an error stating it has received a version of the credit report that is not supported by the current version of DU and to contact the credit agency technical support group to ensure the correct version of the credit report is being provided.
Q: Will the requirement for the new version of the credit report change how credit reports are ordered?
A: No. The process for ordering and reissuing credit reports for use in DU will not change with the new version of the credit report that includes trended data.
Q: Should the use of trended credit data impact how lenders underwrite a loan?
A: For loan casefiles underwritten through DU, lenders are not expected to analyze the trended data. For manually underwritten loans or loans underwritten outside of DU, lenders do not need to analyze trended data or consider it in the underwriting and eligibility criteria.
Q: Will loans for borrowers that make only the minimum payment on their credit card each month be able to receive an Approve recommendation from DU?
A: Yes. The use of the actual payment information will impact the analysis of the borrower’s credit. However, the actual payment information is used in just one of the credit risk factors analyzed by DU DU will continue to perform a comprehensive evaluation of all of the credit and non-credit risk factors on the loan to determine the recommendation.
Q: How does the amount a borrower pays on their credit card account demonstrate how they will pay their mortgage?
A: The trended data will be used by the DU risk assessment to evaluate how the borrower manages his/her revolving credit card accounts. A borrower who uses revolving accounts conservatively (low revolving credit utilization and/or regular payoff of revolving balance) will be considered a lower risk. A borrower whose revolving credit utilization is high and/or who makes only the minimum monthly payment each month will be considered higher risk.
Q: Does the use of trended data impact what payment would need to be included in the debt-to-income ratio (DTI) for the borrower’s revolving account, or the amount of the borrower’s assets that would need to be verified?
A: No. The borrower may still be qualified with the minimum payment reflected on the credit report for their revolving accounts (even if they are paying more than that each month). The lender will not be required to verify or update the balance of the borrower’s revolving accounts, even if they consistently pay them off each month.
Q: Does trended credit data impact the credit scores returned on the credit report?
A: No. The classic credit score models do not use trended data, so they are not impacted by the addition of it to the credit report. These classic versions of the credit scores will continue to be those accepted by Fannie Mae.
Q: Do all the credit repositories report trended data?
A: The trended data will be provided by Equifax and Transunion. The data is not yet available from Experian, and there is currently no ETA on when or if they will provide it.
Q: Does the trended data need to be re-verified as part of the lender’s quality control (QC) processes?
A: No. While the lender must continue to obtain a new mortgage credit report as part of their QC process, trended data does not need to be re-verified.
Keep in mind that mortgage professionals can now see the mortgage trended data on applicants' credit reports. However, this information must NOT be used in underwriting loan decisions until June 25.
Have questions about mortgage trended data? Make certain to subscribe to our blog to keep up with all the breaking news!