Fannie Mae’s New Version Of Du To Focus On Credit Risks

Fannie Mae on Wednesday announced that its next version of the Desktop Underwriter (DU) software platform will be available for users on Jan. 11. The platform will feature “enhanced” risk assessment by incorporating new data points, including updated market conditions and loan performance data in its assessment functionality.

Fannie Mae said that DU version 12.0 represents “a major update to DU’s credit risk assessment and opens new opportunities for homeownership,” while claiming it will also offer new ways to evaluate borrowers “with thin or no credit” and will offer additional details on rent history and “cash flow assessment.”

The new version also removes certain criteria from the evaluation process, according to the release notes of version 12.0. These include “the composition of revolving debts within the borrower’s total monthly expenses” (though student loan debt will continue to be a factor); and variable income resulting from overtime, bonus or commission pay.

Status as a first-time homebuyer will now also count as “a mitigating factor in the DU Risk Assessment,” as research into the development process for the new version suggested that loans where a borrower identified themselves as first-time homebuyers “performed better than similar loans for borrowers that had previously owned a home.”

The new version will also change the recommendation given for an applicant with a “significant derogatory credit event,” which often includes bankruptcies, foreclosures, short sales and charge-offs of mortgage accounts.

In the new version, a certain amount of time must pass following a significant derogatory credit event “before the borrower is eligible for a new loan salable to Fannie Mae,” the release notes explain. “When it does not appear that a borrower has met the waiting period requirements for a foreclosure or bankruptcy, [the updated DU] will now issue an ‘ineligible’ recommendation instead of a ‘Refer with Caution’ recommendation.

Criteria will also change for borrowers who have no credit score, and some of these borrowers may be able to move forward under specified eligibility guidelines. Specific considerations will also be made in instances where multiple borrowers on a credit application have at least one credit score between them, and these potential loans “will no longer be subject to limitations on loan purpose or occupancy and will now be subject to standard eligibility guidelines.”

But in certain situations, the lender will need to document a nontraditional credit history for each borrower without a credit score, the notes said.