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Freddie Mac announces underwriting innovation
Freddie Mac announced Monday a new underwriting innovation that aims to qualify more borrowers for a mortgage. The innovation will include a “review of a borrower’s bank account data to identify a history of positive monthly cash flow activity as part of its technology's loan purchase eligibility assessments.” The innovation will be available to mortgage lenders though Freddie Mac's automated underwriting system, Loan Product Advisor (LPA), beginning Nov. 6, 2022, and will aim to increase homeownership opportunities for first-time buyers and underserved communities.
“Our latest innovation levels the playing field and helps make homes more accessible to borrowers whose lenders might not have qualified them with traditional methods of underwriting,” said Freddie Mac Single-Family Senior Vice President and Chief Credit Officer Terri Merlino. “This should particularly help first-time homebuyers and underserved communities.”
The innovation requires the borrower’s permission and allows lenders to submit financial account data to LPA to “identify 12 or more months of cash flow activity for inclusion in the tool’s risk assessment.” Notably, any submitted account data can only have a positive effect on the borrower’s credit risk assessment.
Freddie Mac also noted that lenders can “obtain the financial account data from designated third-party service providers using the same automated process they currently use,” when verifying income, employment, and assets.
Earlier this year, NAFCU Vice President of Regulatory Affairs Ann Petros delivered remarks at an FHFA public session, urging for alternative credit scoring models that more accurately capture creditworthy borrowers and offer them access to affordable credit.
NAFCU will remain engaged with Freddie Mac to help credit unions provide outstanding mortgage and lending services to members and continue to support more credit opportunities for first-time homebuyers and underserved borrowers.