Fannie Mae has come up with a new data element in it's automated underwriting process. The new process is called "trended data" and will give a clearer picture of how borrowers pay their bills over time.
Currently credit scores are based on a snapshot in time. This means that maybe you always pay your credit cards in full but the past month you maxed out a card and only paid the minimum. Your credit score will drop due to the current high balance – even though you usually pay off your cards. With trended data, it will show that you always pay off the credit cards in full and this month wasn't the norm. So for those that pay off credit cards monthly, this will help give them lower interest rates.
For those that always pay the minimum on their cards and keep a high balance, it will show this information also. These are usually riskier borrowers and so the credit score may be lower for these borrowers. This also means if you have been carrying a balance and pay down your credit card to get a better credit score, it will take longer to increase the score. This report looks at your history over the past 24 months.
Trended data can also show if your credit card balances are increasing and you are making minimum payments – this is also riskier for the lender. According to Fannie Mae's president, using trended data provides insight into the borrower's use of credit and provides a better picture of their eligibility for mortgage loans. Fannie Mae hopes that using this tool will help lenders to better assess a borrower's credit worthiness and be more confident that a borrower will repay their mortgage.
Fannie Mae is updating it's automated underwriting programs to use trended data starting in the 2nd quarter of 2016. Trended data will be available by this summer.
Fannie Mae and Freddie Mac are also talking about whether to use a new FICO credit score model or go to the Vantage system. The current model we use is about ten years old. Using trended data will help with the new systems.
Trended data will not help those that do not have a credit history either. There isn't a way to use the new program if you do not have a credit history, so getting some type of credit is important. Just make sure to use the credit cards wisely and try to pay down or off your balance monthly.
Using trended data will help but not change the way mortgages are done – it's another tool and still brand new. I'm sure we will see several changes as companies start working with trended data reports.