Most loans now consider “on-time rent payments” if buyers agree to monitoring, but this seemingly similar new program could help some independent contractors.
homeownership opportunities by including a “review of a borrowers’ bank account data.”
With the buyer’s permission, lenders who plan to sell a mortgage to Freddie Mac will be empowered to include the buyer’s bank account data when considering loan approval. “Positive monthly cash flow activity” will increase a borrower’s eligibility and the chance that their loan application will be approved.
Over the past few years, Freddie Mac, Fannie Mae and FHA have added an option that allows lenders to consider on-time rent payments in calculations. Homebuyers with a thin or non-existent credit score could allow the lender to verify on-time rent payments, which increases their chance for approval.
The new program sounds similar, but instead of looking at only rent payments, Freddie Mac says lenders will consider a buyer’s cash flow over the past year if the buyer grants them access to their bank accounts.
This “industry-first innovation will be available to mortgage lenders nationwide through Freddie Macs automated underwriting system, Loan Product Advisor (LPA), beginning Nov. 6, 2022,” Freddie Mac says in announcing the change.
Terri Merlino, Freddie Mac Single-Family senior vice president and chief credit officer, says adding cash-flow data helps lenders better predict a borrower’s ability to pay their mortgage over time because it shows how the buyers have been handling their finances over the past year. It “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.”
How the program works
With the borrowers permission, lenders and brokers can submit financial account data for (LPA) to identify 12 or more months of cash flow activity to include in the tools risk assessment. Data can 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.
The account data can only positively affect the borrowers credit risk assessment, according to Freddie Mac. It won’t be included if it would have a negative impact.
To help identify opportunities, LPA will notify lenders if it appears that additional account data could benefit a borrower.
Lenders and brokers can obtain the financial account data from designated third-party service providers using the same automated process they currently use to verify assets, income (using direct deposit), employment, and on-time rent payments via a single report through LPA’s asset and income modeler (AIM).
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