Fannie Mae has announced upcoming changes to its widely used Desktop Underwriter (DU) system that helps lenders determine a mortgage’s eligibility for sale to the government-sponsored enterprise (GSE).
DU Version 12.0, set to be implemented during the weekend of Jan. 11, 2025, will “leverage new sources of data to keep up with changing borrower profiles and better serve current borrowers,” according to a blog post by Steve Holden, senior vice president of single-family analytics at Fannie, on Fannie’s website. As part of the updates to DU’s risk factor considerations, Fannie will no longer consider the composition of revolving debts within a borrower’s total monthly expenses or evaluate a borrower’s valuable income. Holden said that such factors weren’t impactful enough to include after all other risk factors were assessed.
Fannie is also “adjusting how we evaluate debt composition” for student loan debt to reflect its finding that borrowers with student loan debt actually perform better than borrowers without it, assuming other risk factors were held constant. And Fannie is now considering first-time homebuyer status as a mitigating factor, since first-time homebuyers performed better than repeat buyers of similar debt levels and risk factors.
The use of rent payment history data is also being expanded to include rent reported on a credit report. Fannie began encouraging multifamily property owners to report rental payments to credit bureaus in 2022; Holden said that Fannie believes adding this data to the pool will more than double credit availability to borrowers compared to just using bank statement data from 12-month asset verification reports, which the GSE began utilizing in 2021.
Finally, Fannie has increased eligibility for a cash flow assessment, previously only available to borrowers who do not have a credit score. With the update, all borrowers will be eligible.
According to Holden, the new features have improved the GSE’s ability to rank loan application riskiness by 14%.
“This improvement in model accuracy gives us confidence that we and our credit partners can rely on the DU Risk Assessment through all market cycles. Stakeholders may observe that some loans will now receive an Approve/Eligible recommendation that would have previously received an Approve/Ineligible or Refer with Caution recommendation, and vice versa, when compared to the current version of DU.”
