These times of limited affordability and changing views on credit are making it tough on lenders and even tougher on the GSEs who are the primary market for the mortgages they originate. In an effort to reduce its risk burden by transferring more to investors in mortgage-backed securities, Fannie Mae has sharpened its pencil and put in place a series of changes in the way it assesses risk. These changes, largely to Fannie’s automated underwriting program, Desktop Underwriter, will open the door to homeownership a little wider to buyers who don’t fit neatly into the traditional parameters that originators use to approve mortgage applications.
“We are enhancing our offerings, improving our tools and innovating through the technology we provide to our customers. Our goal is to make sustainable homeownership a reality in communities across the country while reducing risk for taxpayers.” said Timothy J. Mayopoulos, President and Chief Executive Officer, Fannie Mae.
These tools include:
Nontraditional credit history. Fannie Mae is building a new capability through its Desktop Underwriter automated underwriting system to help lenders more efficiently serve borrowers who do not have a traditional credit history. Currently, Fannie Mae requires lenders to use a manual process to underwrite loans made to these borrowers. With the simplicity and additional certainty that Desktop Underwriter provides to lenders, more borrowers will have access to affordable, sustainable mortgage credit. Fannie Mae will provide guidance to lenders about this new capability in the coming months, and anticipates that the new functionality will be available in 2016.
Trended credit data. Currently, 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 such as credit cards, mortgages or student loans. With trended credit data, lenders will have access to the monthly payment amounts that a consumer has made on these accounts over time. 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. In mid-2016, Fannie Mae will require lenders to use trended credit data when underwriting single-family borrowers through Desktop Underwriter®.
Self-service reporting and data analytics portal for customers and business partners – Fannie Mae will offer Fannie Mae Connect, a new tool to streamline and improve the data, beginning later this year. Fannie Mae Connect will be a one stop source for users to access data and analytics they need with a single sign-on, replacing multiple legacy systems. Users can customize their access and reporting categories, receive email notifications of new reports, and provide feedback to Fannie Mae via an online comment box. The full system with new reports will be available in November.
Data validation. Next year, Fannie Mae will offer data validation services to help lenders originate loans with greater simplicity and certainty. Instead of requiring a borrower to provide copies of pay stubs or other documents to verify income, lenders will be able to validate income through Desktop Underwriter with data provided by Equifax’s The Work Number® (TWN). In addition to efficiency for borrowers and lenders, this could reduce the frequency of mortgage fraud.
By the end of this year, Fannie Mae anticipates it will have transferred a portion of the credit risk on approximately half a trillion dollars in single-family mortgages. In addition, Fannie Mae is testing a variety of credit risk transfer mechanisms, completing a series of transactions with reinsurers and building the first actual-loss transaction under its Connecticut Avenue Securities series.