• Late last year, Fannie Mae incorporated trended data into its Desktop Underwriter automated underwriting platform to provide much more information about borrower behavior in their decision-making.
  • Some studies suggest trended data -- which exposes much more granular data about a borrower’s payment history on a monthly basis than traditional credit scores -- will benefit marginal borrowers and increase mortgage approvals.
  • In fact, trended data rewards some borrowers and punishes others. People who demonstrate a consistent pattern of improvement over a period of time fare better than those who go on a “crash diet” and try to “fix” their credit in three months or less.

With foreclosures at a 10-year low, a good case can be made to take a look at strict lending standards that may be doing more harm than good.

For example, during the period immediately following the housing bust, from 2009 to 2014, 5.2 million mortgages that would have passed muster under cautious lending standards in place for many years before they slackened during the housing boom were denied.

Today’s standards, except for FHA borrowers, haven’t changed much since then.

Some proponents believe new techniques to analyze creditworthiness, like trended data, will also help some marginal borrowers qualify for loans.

Trended credit data takes a deeper dive into creditworthiness than the snapshots provided by credit scores and looks at multiple snapshots going backward in time to track trends in past behavior.

Trended data reports include up to 24 months of tradeline level credit information such as balance, credit limit, high credit, scheduled payment and actual payment. It exposes much more granular data about a borrower’s payment history on a monthly basis than traditional credit histories.

Will trended credit result in more approvals?

Late last year, Fannie Mae required trended data for its automated underwriting software, Desktop Underwriter.

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Trended data winners and losers

Trended data delivers an explosion of information and software like the tools to help lenders interpret the numbers to determine patterns of behavior and uses predictive technology to evaluate each borrower’s level of risk.

Chung outlined specific ways trended data rewards or penalizes certain behavior.

  • Demonstrating positive credit behavior over a longer period is extraordinarily desirable, and it is more important now that lenders are using trended data.
  • Trended data rewards people who demonstrate a consistent pattern of improvement over a period of time. People with healthy credit habits do better than those who go on a “crash diet” and try to “fix” their credit in three months or less.
  • Longer is better in terms of improving and sustaining good credit. Trended data hasn’t been around enough to indicate how long it takes for good behavior to pay off, but probably six months or more. Three months is probably not a sufficient period for anything less than stellar behavior to make a difference.
  • On the other hand, if lenders see recent negative behavior, even it is over a month or less, that bad period will weigh heavily against a borrower and his or her credit will drop very quickly. Positive improvement takes more time to register than negative behavior.

Chung recommends that real estate agents should work with buyers as early in the process as possible to find a loan officer who will go to bat for them because trended data produces so much information that every borrower’s personal situation is different.

“It’s important for Realtors to find a loan originator who is going to provide support for their buyers and give them personalized guidance,” Chung said.

What’s the single most important way to get trended credit to work for you? Care about credit all the time, not just when you are thinking about using it.

Steve Cook is editor and co-publisher of Real Estate Economy Watch. Visit him on LinkedIn and Facebook.

Email Steve Cook.

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