Word of the week… “Trended Data”

Word of the week –  Trended Credit Data

Just like your upgraded phone, so too does Fannie Mae update their electronic underwriting system from time to time.  This underwriting system is the most widely used system in the world for underwriting loans.  Even though Fannie Mae (and baby brother Freddie Mac) only purchase loans up to the County maximum, most Jumbo lenders follow their recommendation in some ways.

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.

Why did Fannie Mae add trended credit data to the credit risk factors analyzed by DU?

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)       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 (see Appendix A of the DU Version 10.0 Release Notes). 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 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.

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To put it into perspective, holding all else equal on a loan…

Research has shown that borrowers who…. Are…… Than borrowers who…..
Never exceed their limit 75% less likely to become delinquent Exceeded their credit card limit in the last 12 months
Pay off their credit card every month 60% less likely to become delinquent Only make their minimum payment each month