At Last, Mortgage Companies Can Apply Common Sense to Determine Your Creditworthiness
Even if your credit report does not reflect it, your perception of debt may make you more or less credit-worthy. Until recently, however, mortgage companies have had problems giving people with healthy attitudes toward debt better average rates.
Starting on September 24, 2016, Fannie Mae has scheduled release of new version to begin taking revolving versus transacting credit data into consideration. Any credit report submitted with a mortgage application must now include information on how much the consumer owed in revolving debt (usually credit card debt) every month, what the minimum payment allowed was, and how much they actually paid per month. And the information needs to go back two years.
This will have an enormous impact on mortgage financing. Most people won’t be affected positively or negatively, but certain people will find it much easier to get credit at lower rates than they were offered before.
Your Attitude Toward Debt Makes a Difference
Until recently, transactors, or people who paid off credit cards regularly didn’t have a significant advantage over revolvers, people who maintained a credit card balance. Fannie Mae’s new policy changes this, giving transactors a significant advantage.
Transactors view credit as DEBT – they try to use their credit minimally, paying off more than the minimum balance every month or paying off the balance in full. Revolvers view credit as an ASSET – they typically pay the minimum monthly balance, allowing balances – and debt – to build over time. Early in their lives as a consumer, transactors and revolvers often look the same on a standard credit report.
However, because of this difference in perception, transactors are more likely to keep debts under control and carry less overall debt over time. A transactor is also less likely to use credit, so their credit reports may be more shallow than the reports of a revolver. This often impacts their credit reports negatively, inaccurately reflecting their true creditworthiness.
While mortgage companies and others who provide consumer credit have long been aware of this problem, there has been no major push to create tools, like credit trending data reports, to identify transactors.
To determine how significant this impact will be, credit reporter TransUnion conducted a study of people whose credit was unscorable by existing standards. When they added Sallie Mae’s new credit trending data requirement to those files, 26 million consumers were able to be scored, and of these people almost three million were classified in the high “prime” and “super prime” categories – suddenly, they had excellent credit whereas before they had no credit.
While the additional data does not go into the FICO score used by credit companies, it is still taken into consideration for the purpose of mortgage lending.
How It Helps Consumers
If you’re a transactor, or if you have been a transactor for at least two years, this is a great time to consider applying for a mortgage or refinancing an old one. Fannie Mae does not directly finance your mortgage, but because they purchase mortgages from lenders to keep money flowing, their opinion on your creditworthiness makes a huge impact on how lenders view your creditworthiness. Revolvers with great payment histories are much more likely to get low-interest loans, and that’s a very good thing.
If you’re interested in exploring whether your good credit habits have pushed you into prime or superprime categories, even if you were disappointed recently, give Eagle Mortgage a call. We’ll be happy to discuss this and other mortgage services we can provide you.
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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.