New credit scoring model: Trended credit

Solano Real Estate Scene: Jim Porter

Article By: Jim Porter – September 17, 2016

Starting in September, Fannie Mae will implement trended credit in its underwriting program.

Trended credit is an expanded credit report that includes amount owed, minimum payment and payment made, into the underwriting process. Trended credit will show a much bigger picture of a borrower’s potential. The purpose is to show a more accurate account of a how a borrower manages credit and will help to determine if he or she qualifies for a loan.

According to a release on Fannie Mae’s website, credit reports are used in mortgage lending to show the outstanding balance and whether or not a borrower has paid on time on existing credit cards, mortgages or student loans. It will also show the monthly payment amounts that a consumer has made on these accounts over time.

Among the enhancements of the new program, lenders will now be allowed to determine if the borrower tends to pay off revolving credit lines, such as credit cards, each month or if they tend to carry a balance from month to month while making minimum or other payments.

Credit scoring models assess the ability and willingness of borrowers to pay their debts using data collected by the three consumer credit reporting companies: Equifax, TransUnion and Experian. Borrowers repay debt in various ways, mostly successfully. The credit score is a great indicator for whether or not a person will repay current or future credit.

This is a significant change for the mortgage industry, which has not seen a major change since 1989 when FICO credit scores were first introduced. This new scoring model will benefit some borrowers and possibly make it more difficult for others.

As with all change, it will take some time to settle in but it definitely seems manageable for those who work in the industry.

Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.