This will be a heads-up for Central Mass residents who may be applying for a home loan in the
future: there were some major adjustments that could affect their eligibility. It hasn’t been talked about much, possibly because most peoples’ eyes tend to glaze over when the topic of loan analysis is raised. But the more Central Mass mortgage applicants know about how lenders decide which loans to grant and on what terms, the better the odds of getting a green light.
The way Fannie Mae (FNMA) goes about assessing creditworthiness has changed. FNMA is the government-backed outfit that buys up private lenders’ home loans once they have been made. That insures that the lenders continue to have a steady supply of cash with which to fund new loans. In short, Fannie’s mission is to keep the home loan industry liquid. Together with similar corporation Freddie Mac, they are behind 60% of home loans in the U.S.; so many Central Mass mortgages are directly involved.
In order to qualify for government backing, lenders have to prove that a given home loan carries an acceptable level of risk. Lenders work with software programs issued by Fannie to help put numbers to the amount of risk and that’s where the change has taken place. Their release of the software (“Desk Underwriter”) will be used. For the first time, it adds a new element in the way a local applicant’s credit history is analyzed; one that is intended to better predict their ability to repay. It’s called “trended data.”
Credit reports will continue to use the familiar scoring benchmarks: outstanding balance, percentage of credit used, and timeliness of payments. In fact, the traditional credit scores aren’t slated to be impacted at all. What will change is the importance those scores are given, because the trended credit data will go deeper into what a borrower’s history shows. The software will take the previous 24 months’ revolving credit card payment history to rate whether the trend has been one of using more credit; maintaining the same level of borrowing; or paying down balances. In brief, if the “trended data” shows that balances owed have been rising, it indicates a Near Prime borrower. If the amount owed remains relatively stable, it shows a Prime borrower. If the balances have been dropping, it indicates a Super Prime candidate who is most likely to repay without a hitch.
There are nuances, too (they really would make everyone’s eyes glaze over)—but that’s the big picture. For Central Mass mortgage applicants who will be applying this spring/summer, the fact that their history will now be analyzed in this manner is at least good to know even if it’s not possible to alter. For everyone else who may not be applying for a while yet, it should be useful to plan credit card usage in light of how it’s likely to affect lending decisions.
I make it a point to keep my clients abreast of all current developments affecting the buying, selling, and financing of Central Mass properties. Whenever you have a question about anything to do with our local real estate scene, I hope you won’t hesitate to call! I can also recommend lenders that can guide you through the loan process as aggravation free as possible…..Realty Ace, LLC.