Trended Credit Data – Fannie Mae DU 10.0

Credit Qualifying

Over the weekend of September 24th, 2016, Fannie Mae is updating DU to Version 10.0, and introducing a new approach to credit qualifying by analyzing trended credit data.

It is not unusual for Fannie Mae to release updates throughout the year for both Conventional, and Government loans (FHA and VA).

DU Version 10.0 update is introducing a new risk assessment model that changes the way your credit report is used for qualifying you for a home loan using conventional financing.

Sometimes these updates are very minor and do not affect qualifying.  Other times, these changes are much more significant, and absolutely will affect borrowers applying for a loan after the effective date of the change.

This is a pretty major change in the way that Fannie Mae looks at credit reports.

Trended Credit Data

When applying for a home mortgage loan, your lender will pull a credit report that will combine all three credit bureaus (Experian, Trans Union, Equifax) into one report.

These credit bureaus generate a credit score that is based on your outstanding balances, utilization and availability of credit, and whether or not you have made your payments on time on all existing credit accounts such as credit cards, mortgages, auto, and student loans.

DU Version 10.0 will use trended credit data in the credit risk assessment, which means that Fannie Mae is going to start looking at historical monthly data (when available) on several factors, including: balances, scheduled payments, and actual payment amounts that you have made on the account.

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Using this trended credit data model, making the minimum payment on credit cards can work against you.

The use of trended data is meant to be a more accurate way of analyzing risk based on “how” you use your credit, and not “what” accounts are on your credit report.

DU Version 10.0 trended data analysis will only use the trended credit data on revolving credit card accounts for the most recent 24 months’ payment history (even if more than 24 months’ worth of data is provided on the credit report).

What this means to you?

Basically, DU is no longer going to discriminate against what kind of debt you carry on your credit report, and look at more of a “bigger picture” about how you use your credit.

In previous versions of DU, a mortgage trade line is looked at differently than a credit card trade line.  In DU Version 10.0, all credit lines are considered the same, and you are judged on your behavior more than your history.

These changes will help borrowers with fewer credit lines, that have at least a 24 month history of good credit management.

NOTE: The use of trended credit data by DU will not impact FHA or VA loans underwritten through DU.

Qualifying with No Credit Score

DU Version 10.0 will allow borrowers to qualify for a Fannie Mae Conventional loan even if you do not currently have a credit score. This update will automate what is currently a manual process for lenders.

Most lenders will not manually underwrite a Fannie Mae Conventional loan, which means that most borrowers have never had access to this exception.

When a credit report indicates a FICO score could not be provided for any of the borrowers due to insufficient credit, the loan may be eligible to be underwritten using DU Version 10.0.

This special underwriting feature is not available on all Fannie Mae mortgages.  At this time, you will only be eligible for a Conventional mortgage if you have no FICO score if:

• Principal residence transaction where all borrowers will occupy the property
• One-unit property (may not be a manufactured home)
• Purchase or limited cash-out refinance transaction
• Fixed-rate mortgage
• Loan amount must meet the general loan limits (may not be a high-balance mortgage loan)
• LTV, CLTV, and HCLTV ratios may be no more than 90%
• Debt-to-income ratio must be less than 40%

In addition to meeting the above criteria, DU is going to look at compensating factors to help support your credit worthiness, and offset any risk that was previously associated with not having a credit score.

You may have a better chance at getting approved with no FICO score if you have compensating factors. Examples of compensating factors that strengthen your credit profile include:

• Loan to value – Higher down payment or equity
• Liquid reserves – Checking, Savings, 401k, IRA or other accessible funds
• Debt-to-income ratio – high income and low payments will help

Additional Documentation Requirements

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DU will require the verification of at least two non-traditional credit sources for each borrower that does not have traditional credit, one of which must be housing-related.  Examples of this would be rent for home buyers, or cancelled checks if you are a homeowner and your mortgage does not report on your credit (common with hard money or portfolio loans).

A 12 month payment history is required for each source of nontraditional credit.

Is it Easier to Qualify Now?

The million dollar question is….will these changes make it easier for me to qualify for a home loan?  If you and your family are on a mostly “all cash” budget, and don’t like to carry credit, then both of these new guidelines could make it easier to qualify.

The funny thing about credit reports is that it doesn’t really say anything about whether or not you are responsible with your budgeting and your cashflow, it’s really more about how good you are about going into debt.

This “bigger picture” approach to underwriting is a refreshing change.  Whether or not the DU Version 10.0 changes will help or hurt is still to be seen.

I can see where these changes will open the doors for people that currently were on the cusp of qualifying, and unable to find a lender that can manually underwrite a conventional loan.

What we will not know for a while is, will these changes affect you if you already qualified under the old guidelines.  Some argue that trended credit data analysis is going to punish some borrowers.

My biggest concern about trended credit data is that up to this point, DU would look at the last 12 months payment history, and trended credit data is a 24 month review of your credit.

At the end of the day, I think these are positive changes that will allow more qualified buyers to purchase a home using conventional financing.