With Fannie Mae mandating the usage of trended data in its underwriting process, trended data has become all the rage now. Though credit rating agencies such as FICO and Vantage still do not consider using it, it cannot be denied that trended data has emerged as a major factor in determining credit worthiness of borrowers.
Trended data or trended credit data is the complete information of borrowers’ credit history at a point of time. This includes information on borrower’s outstanding dues, amount paid, payment timings, mode of payments and more. A thorough credit history is essential in identifying the right person for the right debt. With the subprime mortgage crisis not a very distant memory, it is important for lenders to remain cautious about potential defaults. Moreover, trended data helps in simplifying the loan origination process for deserving individuals with a stable repayment history in getting access to mortgage.
June 25, 2016 is the deadline for Fannie Mae’s trended data incorporation to its automated desktop underwriter (DU). The all new DU version 10 would improve the accuracy of risk assessment and benefit ‘transactors’ who can regularly pay off their debts. The data element would provide a 24-month insight into borrowers’ credit card payment history which would help in distinguishing revolvers from transactors and determining the type of mortgage that can be extended.
Revolvers pay the minimum amount every month towards their credit card and carry on with the balance, whereas Transactors are model borrowers who pay their entire credit card bill every month, and therefore, are considered less risky. Lenders can utilize this information to price their mortgages as per the credit liabilities. For instance, transactors can get a better pricing for their mortgages compared to revolvers even with high credit scores.
Lenders across the spectrum are looking out for a comprehensive credit assessment that is powerful and gives an insightful snapshot of the credit worthiness of an individual. But the presently available credit score is not a complete all encompassing, insightful snapshot of risk. It usually comprises FICO score, which includes information about default in payments in the last 12 months. With such minimal information, gauging the credit worthiness is difficult. Trended data, on the other hand, provides information about the actual scheduled payments and balance carried over for each trade line like credit card, utilities, mortgages etc. This report is based on a 24-month period and therefore, is a better tool for risk assessment.
Trended data is, however, currently not incorporated by popular rating agencies such as FICO. Incorporating complete risk assessment during the underwriting process would make loan origination more sustainable and default proof believes the mortgage industry. Trended data can deliver more useful metrics and insights about a borrower’s eligibility in the long run.
Preethi vagadia is a business architect worked in Mortgage and Finance software department with top notch companies and has over 8 years of experience in Mortgage technology ,Mortgage Loan Servicing software solutions,mortgage management software etc. She has also worked in several process improvement projects involving multi-national teams for global customers in warranty management and mortgage.