Fannie Mae announced changes to its automated underwriting system designed to provide new benefits to borrowers with no credit score. These enhancements are meant to help historically underserved borrowers access credit and further support Fannie Mae’s commitment to serving renters and homeowners in an equitable and sustainable way.
According to data from the Consumer Financial Protection Bureau, millions of people in the U.S. are considered credit invisible, with Black and Latino/Hispanic people disproportionately represented. Close to 15 percent of Black and Latino/Hispanic people are credit invisible, compared with only 9 percent of their white and Asian counterparts.
Checking, savings, and investment account data are used to provide a more comprehensive view into a borrower's financial health that can help enhance the credit assessment as part of the lender's underwriting decision. Fannie Mae's preliminary research has shown that assessing a borrower's cash flow activity through bank statement data can make more predictive risk assessments, especially for consumers with no or limited credit history.
“We believe consumers should benefit from their responsible money management habits and a steady stream of income when buying a home, even if they don’t have an established credit history,” Malloy Evans, executive vice president and head of single-family business at Fannie Mae, said in a release. “Traditional lending practices make it hard for borrowers with no credit score to access credit, so we’ve taken steps that may help them responsibly qualify for a home loan using data that provides a more holistic view of how they manage their money.”
Starting in mid-December, Fannie Mae’s Desktop Underwriter began delivering new benefits to borrowers with no credit score and the lenders who serve them. These new benefits will:
Update the eligibility criteria for loans where no borrower has a credit score to align with Fannie Mae’s standard Selling Guide requirements, which may help more borrowers qualify for a home loan.
Enable an evaluation of a borrower’s monthly cash flow over a 12-month period to potentially enhance their credit risk assessment.
Simplify the mortgage process by automating the current Selling Guide policy requirement to document nontraditional sources of credit.