As part of an upgrade to its Desktop Underwriter (DU) that will be issued over the December 8 weekend, Fannie Mae says there will be some adjustments to the credit risk assessment functions. The company says the changes are part of prudent risk management and are meant to account for 2018 market conditions including rising interest rates, waning refinances, and higher loan-to-value (LTV) lending.
The announcement notes that the new version, DU 10.3, is intended to help the company's customers serve their borrowers in a manner that is reflective of current market realities. Fannie may says the new version will continue to analyze each loan casefile using variables that have shown to be predictive of mortgage delinquency. It will also, at a time when lending volume is expected to decline, address lenders expansion into new loan types by employing more effective management of risk layering. They anticipate the changes will lead a slight reduction in loans that receive an Approve/Eligible recommendation with the most noticeable reduction being among loans with multiple high-risk factors.
DU will continue to look for the presence of a credit score to determine if a borrower has traditional credit if the borrower has at least one credit report account that is not a medical tradeline. A loan casefile with a credit score but only medical tradelines will receive an Out of Scope recommendation and the lender must manually underwrite the loan casefile in accordance with the Selling Guide.
Other significant changes between Versions 10.2 and 10.3 are a new entry on the housing expense ratio and changes to the section on Public Records, Foreclosures, and Collection Accounts. The new section reads: "New Loans for a borrower with a lower housing expense ratio will be considered a lower risk, while those where the housing expense ratio is higher will be considered higher risk. Research has shown that borrowers whose total monthly expense is composed primarily of their housing expense may find it more difficult to pay their housing expense when experiencing an event that would cause financial distress, such as the loss of a job."
The other change is a note that judgement and tax lien information are no longer available on credit reports so cannot be analyzed. DU will continue to consider the other factors used in DU10.2, i.e. Bankruptcy filings, foreclosures, etc., as higher risk.
The company is also instituting some changes to appraisal waivers. Where a property is located in a disaster area and received an appraisal waiver before the disaster and continues to meet all other eligibility requirements the DU will issue a new message if the casefile is resubmitted. The new message will note that the lender may continue to accept the appraisal offer but must take "prudent and reasonable actions" to determine that the property has not been materially impacted by the disaster. The lender must also comply with the property eligibility requirements in the Selling Guide that pertain to disaster affected properties.
Appraisal waivers for certain home purchases in designated high-needs rural areas will be issued for casefiles submitted or resubmitted on or after December 8. Appraisal waivers will not be offered on refinances when the estimated value of the property is $1 million or more.
The unveiling of DU 10.3 will be accompanied by the retirement of Version 10.1. Effective the weekend of December 8, customers will no longer be able to resubmit loan casefiles to that version. Online loan applications can be viewed along with Findings Reports created earlier, but to obtain an updated underwriting recommendation a new loan casefile must be created and submitted to DU. The last date the 10.1 loan case files would have been created would be March 17, 2018.