Don’t worry, I’m not going to modify the lyrics to this classic Cher song in an attempt to make it into some mortgage-related-sounding column. The thought didn’t even cross my mind.
In fact, I’m not sure know how this song popped into my head when I was reading through the upcoming credit changes that Fannie Mae announced they are scheduled to implement in September on all files submitted to them.
For those of you who don’t know, when Fannie Mae announces a change, everyone in the lending industry carefully listens.
According to Fannie Mae, “Credit reports currently used in mortgage lending indicate only the outstanding balance, utilization and availability of credit, and if a borrower has been on time or delinquent on existing credit accounts such as credit cards, mortgages or student loans.”
However, under their new guidelines they “will use trended credit data, which provides access to historical monthly data (when available) on several factors, including balance, scheduled payments and actual payment amounts that a borrower has made on the account.”
By making this change, Fannie Mae is seeking a more thorough analysis of your credit history.
Per their release notes, their risk assessment model will only use the trended credit data on your revolving credit card accounts for your most recent 24 months of payment history, even if more than 24 months of data is provided on your credit report.
Going forward, Fannie Mae expects that trended credit data may be used on other types of accounts in a later version of their underwriting system, too.
In addition, a few other notable changes include how mortgage delinquencies will no longer be viewed as higher risk than non-mortgage delinquencies and how Fannie will no longer view borrowers with no mortgage history as a higher risk than those who have had mortgage obligations.
Plus, Fannie will evaluate inquiries made within the most recent 12 months instead of six months. But, multiple inquiries made by different mortgage lenders or different auto loan creditors in the same time frame will not be viewed by Fannie as multiple inquiries.
Regarding self-employed borrowers, since self-employment income can vary from year to year and because of the increased chance of uneven cash flows, self-employment introduces an additional layer of risk to a mortgage loan application that is not present with salaried borrowers.
Therefore, Fannie will take this additional risk into consideration when the only borrower on the loan is self-employed or when two borrowers on the loan are self-employed as their primary source of income.
Whether we are turning back time by revisiting looser credit guidelines or are we just being smarter now with the use of better technology, time will ultimately tell.
Perhaps if we had trended credit data to leverage years ago, maybe the mess that happened in the lending industry wouldn’t have been so messy.
Either way, you should check with your lender to see how the complete list of upcoming Fannie Mae credit changes will impact your home loan application.