Fannie Mae has announced that starting in mid-2016 it will begin incorporating trended credit data into its automated underwriting platform, introducing important changes to help strengthen the home mortgage market for both consumers and lenders.
Trended Credit Data – In mid-2016, Fannie Mae will require lenders to use trended credit data when underwriting single-family borrowers through Desktop Underwriter®. This data will be provided by Equifax and TransUnion, and allows a smarter, more thorough analysis of the borrower’s credit history. 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. Among other benefits, 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. Desktop Underwriter will be updated to utilize this trended credit data, and Fannie Mae will provide additional guidance to in the coming months.
Trended data will expand the credit information used for evaluating a home loan applicant, supplementing the traditional moment-in-time snapshot of an applicant's credit balances with a more dynamic two-year picture of the applicant's history managing revolving accounts. With 24 months of historical data like payment and balance history, lenders will be able to examine and consider how consumers are managing their credit accounts over time
Trended credit data will also help lenders differentiate between "transactors" and "revolvers." A home mortgage applicant with a large credit card balance who has a history of paying in full every month (a "transactor") is typically considered to be a better credit risk than an applicant with a large credit card balance who only makes the minimum required payment (a "revolver"). Existing credit reports, however, can't always differentiate between those two consumers.
As you may be aware, Fannie Mae recently announced a new requirement in which both TransUnion and Equifax “Trended Data” will be utilized in the underwriting of single-family borrowers via Desktop Underwriter.(http://www.fanniemae.com/portal/about-us/media/corporate-news/2015/6305.html)
Fannie Mae is currently targeting a mid-2016 implementation date.
In support of this requirement, TransUnion has announced its plan to retire their Legacy Credit Report. As a result, only the new trended data credit report service will be available for mortgage tri-merge origination, secondary use, and quality control. This new service is called the CreditVision Mortgage Credit Report (“CVMCR”).
TransUnion has announced there are a number of reasons for this decision, including their beliefs that employing trended data is beneficial to consumers, having the potential to:
Please see below for answers to common FAQ’s and how Birchwood will support this change.
Q: What data is Fannie Mae actually requiring and what are the associated formatting changes?
A: It is our understanding Fannie Mae has communicated these requirements in their “Credit Agencies System Integration Guide”.
Q: Will all credit reports be impacted?
A: No, only credit reports utilized for mortgage tri-merge originations, secondary use, and quality control will be affected.
Q: How will this transition work?
A: In the second quarter of 2016, Birchwood will work with TransUnion to transition existing mortgage tri-merge origination, secondary use, and quality control subscriber codes to accept the new TransUnion CVMCR. Birchwood will provide additional process details as we finalize the delivery approach.
As subscriber codes are transitioned over, Birchwood will deliver the TransUnion CVMCR credit report (in trended data format rather than legacy format) for mortgage tri-merge origination, secondary use, and quality control transactions.
Beginning with the 2016 July billing period, CVMCR pricing will be in effect (this pricing will be announced at a future date).
Q: Will there be a testing period?
A: Yes, as mentioned above.
Q: Can I adopt the CVMCR format early?
A: Yes, we will work with Birchwood clients to provide CVMCRs to select end-users prior to Fannie Mae’s proposed July 2016 deadline. There will be a separate process in which separate subscriber codes will be temporarily established for early adopter end-users after which these codes will be retired as the transition is finalized.
Q: Will new Service Agreements be required?
A: Only for early adopters.
Much has been written about Fannie Mae’s new Trended Data mandate, Fannie Mae and the repositories agree to its potential benefits to both consumers and lenders alike.
Starting in July 2016 Fannie Mae's Desktop Underwriter platform will require the integration of trended consumer credit data. This trended credit data will be utilized in assessing credit risk and AUS findings for single-family mortgage applicants. Currently, both TransUnion and Equifax have agreed to provide this trended credit data.
While details of Fannie Mae’s trended data implementation are expected to be announced in the coming months, the use of trended credit data is being described as having the potential to open credit availability to millions of consumers currently considered “unscoreable” under traditional credit scoring models. Additionally, consumers currently considered “scorable” may have the opportunity to benefit from more favorable mortgage rates and terms going forward.
Obviously this appears to be a win-win for both borrowers and lenders. Better rates and terms for approximately 23 million more consumers coupled with an additional 26+ million consumers, currently considered “unscoreable”, potentially qualifying for a mortgage.
It’s our hope this advance notice provides valuable insight and assists in answering common questions relative to this change. As more information becomes available from either TransUnion or Equifax we will provide it to you. Again, thank you for your business and we look forward to working with you in 2016. If you have any questions, please contact your sales representative or call the Birchwood Team at (800) 910-0015.
All-cash deals hit a record 43% of home sales during the first three months of 2014, according to RealtyTrac. That's up from 19% a year earlier and the highest level reported since RealtyTrac began tracking the deals in early 2011.
The jump is due to two main factors: strict lending standards that make it difficult to get a mortgage and intense buyer competition.
"Inventory shortages, as well as lending regulations favor the all-cash buyer," said Chris Pollinger of First Team Real Estate in Southern California.
Even buyers who would ordinarily finance their purchases are making all-cash offers to appear more attractive to sellers, said Daren Blomquist, vice president at RealtyTrac.
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"If they have the ability to, homebuyers will put up cash bids just to jump to the front of the line," he said.
After all, cash deals stand a better chance of closing on time. Buyers dependent on financing may run into snags due to strict mortgage underwriting standards.
Interestingly, the increase in cash sales is occurring despite a downturn in purchases by institutional investors -- firms that have been active in buying foreclosures and short sales with cash.
"As institutional investors pull back, there is still strong demand from other cash buyers -- including individual investors, second-home buyers and even owner-occupant buyers -- to fill the vacuum," said Blomquist.
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Cash buyers paid an average of $207,668 for homes during the first quarter, a 13% discount to the properties' average estimated value, according to RealtyTrac.
Part of that disparity is due to the fact that a quarter of the sales were of homes either in the foreclosure process or already foreclosed on by lenders. Such distressed homes typically sell below market value.
Once riddled with foreclosures, Cape Coral, Fla., had the highest level of all-cash deals at nearly 74% of first quarter sales, according to RealtyTrac. Four other Florida cities followed: Miami (67%), Sarasota (65%), Palm Bay (64%) and Lakeland (62%).
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Miami, New York, Boston and coastal California cities are attracting a lot of foreign buyers who are paying in all cash, according to Jeff Meyers, founder of Meyers Research.
In Miami, Latin Americans are putting down deposits of 50% or more on apartments in the early stages of development, enabling builders to self-finance the rest of the building or leverage bank loans at attractive rates. The buyer then pays the balance in cash at the time of occupancy.
In California, Chinese nationals and immigrants are "parking their cash in single-family homes," said Meyers.
In Irvine, Calif., for example, 80% of sales over the past year were to Chinese buyers, he said.
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