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In a move it said would boost lower-income Americans’ ability to buy homes, Freddie Mac said it would start including a review of a prospective homebuyer’s bank account as part of its review of whether or not to purchase a loan from a lender.
The move, which would let the mortgage-buyer determine if a buyer has positive cash flow, is an industry first, it said.
“With the addition of positive monthly cash flow data, our underwriting system can help with more accurately predicting a borrower’s ability to pay their mortgage because it uses a comprehensive view of how personal finances are managed over time,” Terri Merlino, Freddie Mac single-family senior vice president and chief credit officer, said in a statement. “Our latest innovation 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.”
With the borrower’s permission, lenders and brokers can submit financial account data for Freddie Mac’s Loan Product Advisor (LPA) to identify 12 or more months of cash flow activity for inclusion in the tool’s 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 submitted can only positively affect the borrower’s credit risk assessment. To help identify opportunities, LPA will notify lenders when submitting 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).
Working alongside our industry partners, we have made significant progress toward modernizing the mortgage origination process,” said Kevin Kauffman, Freddie Mac Single-Family vice president of client engagement said in a statement. “In the current market, our latest industry-leading innovation delivers lender efficiencies that can lead to cost savings and improvements to the borrower experience, while meeting Freddie Mac’s strong credit underwriting standards.”
Initial service providers supporting Freddie Mac’s LPA borrower cash flow assessment include Blend, Finicity (a MasterCard company), FormFree and PointServ. Freddie Mac’s privacy policy is available online.
