InfoBytes Blog
Freddie to consider bank account data in automated underwriting
On October 17, Freddie Mac announced that beginning November 6, borrowers’ bank account data will be included as part of its loan purchase eligibility assessments. This “industry-first capability” will be made available to lenders and brokers through Freddie’s automated Loan Product Advisor (LPA) underwriting system. “With the addition of positive monthly cash flow data, our underwriting system can help with more accurately predicting a borrower’s ability to pay their mortgage because it uses a comprehensive view of how personal finances are managed over time,” Freddie said in its announcement. “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. This should particularly help first-time homebuyers and underserved communities.”
Lenders and brokers must obtain borrowers’ permission in order to submit financial data showing 12 or more months of cash flow activity. Data may be obtained from checking, savings, and investment accounts, including those used for direct deposit of income and monthly bill payments, such as rent, utilities, and auto loans, Freddie said, stressing that “account data submitted can only positively affect the borrower’s credit risk assessment.” Lenders and brokers will also be able to obtain financial account data from designated third-party service providers through LPA’s asset and income modeler—the same automated process used to verify assets, income, employment, and on-time rent payments, Freddie explained. Additionally, LPA will advise lenders when a borrower may benefit from the submission of additional account data.
The announcement follows Freddie’s decision to start considering on-time rent payments as part of its loan purchase decisions to increase homeownership opportunities for first-time homebuyers. (Covered by InfoBytes here.)