In October 2015, Fannie Mae announced plans to help simplify the mortgage process, allowing more borrowers to qualify using additional incomes and allowing lenders to use alternative data to get a wider look at what the potential borrower’s income and spending habits. The first step in these changes was HomeReady, a program launched last year that allowed low-income borrowers to include the incomes of those who were living in the same household but not appearing on the loan. This allowed extended families to include the incomes from parents, adult children, and others.
Under these new standards, lenders will also be able to use information from credit bureau Equifax to determine a borrower’s income and other information. By obtaining trended credit card data along with verified income and employment information obtained from Equifax, lenders will no longer require pay stubs. This may also allow those who have moderate or thin credit to qualify for a mortgage.
By using trended credit card data, lenders are able to look at more than just a potential borrower’s income and debt. They can also see how much borrowers are paying towards each account every month in addition to the already-available information regarding late payments and current balances. This may help some borrowers qualify for mortgages.
As many as three million borrowers may qualify as prime or superprime by using this alternative data, allowing the mortgage market to expand. Credit scores and debt-to-income ratios will, of course, still remain key factors in lenders’ decisions.