First-time homebuyers or those having no credit history are often at a loss as to how they may manage their mortgages. However, quasi-government agencies like Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) help such people in the major ways to get the homes that they are looking for. Lenders always look to make loans to people that they can sell to Freddie Mac or Fannie Mae.
At present, a bank puts the application information associated with a borrower in an underwriting system that is most often connected directly to Freddie or Fannie. This eventually helps to generate a credit report which is then evaluated by an algorithm to access the eligibility and risk factors. This is followed by a recommendation that comes after a few minutes.
Although it is always up to the lender to make the final decision regarding the loan, having the loan approved through Freddie or Fannie can be the best thing to move forward with. Unless this is not done, the individual will need to go through a standard loan approving process that is not desirable by most lenders. Up until now, it was this mechanical underwriting process that took the decision to a broad range of factors such as the size of the loan as compared to the value of the home, the debt-to-income-ratio of the individual, credit usage on a general basis as well as a generation of standard credit reports. Traditionally, the credit reports showed only the amount of money that a person owed to a lender and who the lender is. It also reflected whether all the payments made on time. However, the latest update by Fannie Mae is going to change all of that.
This latest June 25 update is going to upgrade the system in a way that it is going to analyze a new component called the trended credit data. It will take into consideration all accounting records within a 24-month period and whether or not a person is paying all debts in time but also payments of credit card balances. For instance, it will see whether a person only chooses to pay the minimum due, any additional amounts or whole balance for every month. The system is going to reveal scheduled payments, actual payments, and all balances. The data is going to cover only the credit card accounts over last 24 months.
According to Fannie Mae, the borrowers who tend to make all payments every month are much less likely to turn up as delinquents than those who only choose to pay the minimum amounts. Moreover, borrowers who hardly ever exceed the credit card limits will be 75% less prone to become delinquents.
It means that if first time home buyers can have a record of paying their debt balances on time, then it can work in their favor as they try to get a mortgage. Nevertheless, other traditional factors such as income and assets as well as credit score will still be considered heavily while deciding on mortgages.
Preethi vanadia is a business architect worked in Mortgage and Finance software department with top notch companies and had over eight years of experience in enterprise mortgage Software Technology, Mortgage Loan Servicing software solutions, mortgage management software, etc. She has also worked on several process improvement projects involving multi-national teams for global customers in warranty administration and lease management.