[wpcol_2third id=”” class=”” style=””]SEPTEMBER NEWS YOU CAN USE
Housing Stats ∙ Trended Credit Data
HOUSTON HOME SALES PERKED UP IN AUGUST
Houston area homes sales bounced back in August after a down month in July. The 8.2 percent year-over-year increase was spurred by the growing supply of inventory for buyers. August marked the highest one-month, single-family home sales volume of all time. It was also the first time in a year that homes priced above $500,000 experienced a sales gain.
According to the latest monthly report prepared by the Houston Association of REALTORS® (HAR):
>>>Read the entire release.
FANNIE MAE TO BEGIN USING TRENDED CREDIT DATA NEXT WEEK
Beginning September 24, 2016, borrowers of mortgage loans will have to be qualified based not only on good credit, but also on whether or not they regularly make minimum monthly payments on credit cards, carry balances for long periods of time and other detailed data not typical to current underwriting standards. This could make it harder to get a low-interest rate for some and easier for others.
What is Trended Data?
Trended credit data aims to tell a lender, in great detail, what a borrower’s payment history and balance carrying behavior has been like in the past, and what a borrower’s future payment behaviors are likely to be based on this trended credit data.
Trended credit data will give lenders information on borrowers for items like the following:
Mortgage lenders typically sell the loans they originate to secondary market investors. Fannie Mae, a government-sponsored entity, is one of the biggest investors. Before Fannie Mae agrees to buy any loan, the mortgage lenders who originate them must adhere to underwriting standards set forth by Fannie Mae. As long as mortgages are underwritten based on Fannie Mae’s standards, they will guarantee to buy the loan.
The new standards will apply to new case files submitted to Fannie Mae after the September 24, 2016. After the rollout, the firm will require any mortgage lender who wishes to sell their loans to Fannie Mae to use trended credit data to qualify borrowers. The trended data sources will come from Equifax Inc. (EFX) and TransUnion (TRU), two of the three major credit bureaus. The data is not yet available from Experian.
What Does This Mean For Mortgage Borrowers?
According to Fannie Mae, Equifax, and TransUnion, this is a good thing because many first-time home buyers who have stellar credit will no longer be qualified as high-risk due to never having carried a mortgage loan. Ultimately, the credit bureaus are using credit data on people to develop new products that offer lenders different ways to assess risk. After all, generally, the credit bureaus are for-profit, publicly traded companies that have to answer to shareholders who expect new and updated revenue streams.
There are many people who carry a credit card balance for a long time, paying mostly the minimum due, or slightly over the minimum, these borrowers will be viewed by lenders as higher risk than those who pay off their balances every month, or make monthly payments significantly larger than the monthly minimum. Also, people who conduct balance transfers between credit companies relatively frequently will also be viewed as higher risk borrowers to lenders. These borrowers can expect to get higher rates when they shop for a mortgage loan.
The Bottom Line
The ability for lenders to qualify borrowers for mortgages based on trended credit data means that borrowers who continuously reduce their debts my making large payments or paying off debts every month will be able to get more favorable rates when shopping for a mortgage loan. Borrowers who carry a balance, tend to pay debt off slowly and make relatively small monthly payments will find it more difficult to get the low rates they have been accustomed to getting. Many of these borrowers consider themselves excellent candidates because they show a long payment history without defaulting on payments. However, lenders and secondary investors will increasingly see this behavior differently.
FAQS from Fannie Mae:
What is trended credit data?
Currently credit reports only indicate the balance, the amount of available credit, and if a borrower has been making their payments on time. Trended credit data provides historical information on the balance, scheduled payment, and actual payment made each month.
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 Fannie Mae Desktop Underwriter (DU) risk assessment will only use the trended data on revolving credit card accounts and only for the most recent 24 months.
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?
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.
How does the amount a borrower pays on their credit card account demonstrate how they will pay their mortgage?
The trended credit 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.
Does trended credit data impact the credit scores returned on the credit report, which are then used to apply loan-level price adjustments (LLPAs) when the loan is delivered to Fannie Mae?
No. The classic credit score models do not use trended credit data, so they are not impacted by the addition of the trended credit data to the credit report. These classic versions of the credit scores will continue to be those accepted by Fannie Mae, and will continue to be those used to apply Loan-Level Price Adjustments (LLPA) at delivery.
For more information, see the Fannie Mae website or Investopedia.
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If you think it is time to buy or sell a home, remember to call Leslie Lerner Properties at 713.489.9900. Leslie Lerner Properties is the Home of Flat Fee Listings and Rebated Commissions. A great amount of information can be found at www.LeslieLernerProperties.com. Leslie Lerner Properties offers all of the service for less money, when buying or selling a home.
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