Fannie, Freddie executives tout new data integrations to underwriting standards

At the Mortgage Bankers Association (MBA) Annual Convention & Expo in Nashville, the top executives at the government-sponsored enterprises (GSEs) touted their companies’ innovations in data-driven underwriting as vital steps to evolving the mortgage industry’s credit standards.

Fannie Mae president David Benson and Freddie Mac CEO Michael DeVito spoke at the convention’s GSE update session, apprising the crowd on their progress since Fannie and Freddie released their equitable housing finance plans this past summer.

Benson was effusive about the use of new alternative metrics to expand access to creditworthy borrowers who have fallen through the cracks under traditional underwriting methods.

He said that Fannie Mae specifically started undertaking its equitable housing plan by focusing on one underserved demographic: the Black community. And while Fannie’s research turned up many gaps that have constantly needed to be addressed — such as homebuyer education and assistance with downpayments and closing costs — Benson noted that there also were significant parts of the underwriting process that could be overhauled or upgraded using readily available data.

One such opportunity was in using rent-payment data to identify positive patterns that could boost a borrower’s approval chances, data that Fannie integrated into its underwriting process earlier this year.

“What we have found so far is that 50% of the population of borrowers that were declared eligible that would not have been eligible without that … were minority households. It’s disproportionately beneficial for that population,” he said.

“And the cash-flow underwriting area, [in which] Freddie had a recent announcement, and we hope to announce something too very shortly … we’re really looking forward to using bank-statement data and other pieces of financial data we’ve gathered to be able to qualify people who previously would not have been able to qualify for GSE loans.”

“I’m so happy to see the momentum building in this regard,” DeVito said. “Fannie Mae started it by looking at bank statements, and we at Freddie Mac last year started a multifamily initiative where we incentivized sponsors and building owners to have positive rent reporting.

“Over the last year, we’ve had 100,000 families who now have their rent reported for the first time. Twenty percent of those now having rent reporting have [credit] scores for the first time. They didn’t have a FICO score before. They were a ‘thin file/no score.’ Now they have a score. The people who had a score, two-thirds of those went up by 40 points.

“We also are using bank-deposit data to see regular payments,” he added. “We can recognize it, and we see it and give people credit for that in our loan purchase decisions. So much of the opportunities here are data-driven, and learning to use the data to be better at making decisions for homebuyers, I think that represents progress.”

Commenting on how best the GSEs can continue to serve the mortgage lending sphere during the current downturn, DeVito said that it’s all about one thing: consistency.

“Consistency of presence,” he said. “Consistency of being available to sellers and servicers to help them succeed. I think all of that is important.

“We’ve been through markets like this before,” DeVito added. “We’ve seen what can happen through those kinds of market cycles. And I think continuing to innovate, find better ways to use data and think about things that can help us along the way [are important during those times]. But consistency is really the key.”

Benson threw the spotlight toward multifamily housing as a specific segment for the GSEs to support during the downturn.

“The multifamily sector is one which I think it’s going to be really interesting to watch here,” he said. “We’ve come off of cap rates being at all-time historic lows, and now I think there’s almost everybody kind of waiting to see where that’s all going to flush out, because it takes time in that particular market. I think both of our firms can be really important resources for that market as it adjusts to recover.”


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