Fannie Mae Making Changes How They Evaluate Us
I just read a very interesting article by Kenneth R. Harney, who writes a syndicated column, The Nation's Housing, (New York Times, Chicago Tribune, Inman News, etc.) titled, "Fannie Mae Making Credit Habits into Mortgage Issue." The article was saying that folks with credit cards are considered either a "revolver" or a "transactor" which is determined by whether they make small or minimum payments on their credit card (revolver) or whether they pay off their credit card debt in full each month (transactor).
Up to now lenders didn't care which we were as long as we were current on any payments. Credit reports show exactly that too-whether you are current or whether you are in default or late on any and they never showed what we paid on our balances each month.
Fannie Mae, one of the big "folks" in the mortgage industry is going to begin evaluating how mortgage applicants manage and pay their debt over the prior 2 year period. Fannie Mae will now require that the mortgage credit reports that they use will need to show our paying habits or trends-i.e. how much we owe in revolving debt monthly, what the minimum payment on that debt is and how much the applicant actually paid monthly on it.
Beginning June 25th of this year, this new system (they are calling it "reach-back data") will be an important part of Fannie Mae's online system that many, if not most, mortgage lenders use to determine the applicant's eligibility for the loan they want. Two of the credit bureaus, Equifax & TransUnion will be supplying this new month-by-month credit managing information.
This new system can actually benefit younger folks who may not have a vast number of credit cards and may have small balances that they pay off monthly, and they want a mortgage, but have not yet been able to obtain since their credit reports were so small.
One of the credit bureaus did their own study and found that 26 million folks who have very small credit reports (or in the industry they refer to them as "thin file") that about 3 million of them would then be considered very, very good credit risks ("prime" or "super prime") which could greatly help their chances of getting lower interest rates from lenders.
Another interesting piece was that this new system will not affect anybody's FICO credit score but rather it will simply open up the mortgage opportunity for those that don't have large amounts of credit history data but they do pay off their monthly balances.
The other big mortgage investor, Freddie Mac, Is also looking at whether to also adopt this new practice.
What it means for all of us is that we need to be very aware of how we manage our credit since it could become a key factor in any future mortgages we may want to get!
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