Freddie Mac to begin using personal bank account data as part of the underwriting process to increase homeownership opportunities.

CASE SCENARIO TWO THE RISE IN ARMS

A recent trend is the use of Adjustable-Rate Mortgages or ARMs which typically offers lower rates. Many people are using this type of rate to finance their purchase after seeing that it hasn’t really fluctuated as much as the others over the last decade.

In fact, the Mortgage Banker Association show that the total mortgage application volume for the first week of October, 2022 dropped 2% compared to the previous week.

LET’S GET TECHNICAL.

Ideally going by the current rates the average contract interest rate for the 30 year fixed mortgage rate with conforming loan balances increased to 6.81% from 6.75% and this percentage rise includes the origination fees for the homes with a 20 percent downpayment. This is the highest its ever been since 2006.

“The news that job growth and wage growth continued in September is positive for the housing market, as higher incomes support housing demand. However, it also pushed off the possibility of any near-term pivot from the Federal Reserve on its plans for additional rate hikes,” wrote Michael Fratantoni, MBA’s chief economist in a release.

The average rate for the 5/1 ARMs which typically has a fixed rate for the first five years increased just slightly but somewhat considerably lower at only 5.56%. The share of people preferring this mortgage optionwas just a little under 12%. when rates were significantly lower at the start of the year the share of people preferring ARMs was just 3% as it has been for several years.

ARMs, no matter how rosy they are, arent a good financing option. And while they can be fixed for a period of 10 years, once that period lapses, they adjust to the market rates. However, it makes total sense why people would prefer these loans. Remember, rates have been so low for so long that people never saw the need to take out riskier loans.

Mortgage applications meant for home purchases fell 2 percent for the first week of october were actually 39 percent lower than a year ago. Many buyers feel the pinch of the rising rates which have made affordability worse. While home prices have started to cool down potential buyers are concerned that if they buy now, their new homes might drop in value in the coming years due to concerns of coming recession.

Freddie Mac to begin using personal bank account data as part of the underwriting process to increase homeownership opportunities

Starting November 6, borrowers will begin to experience new technologies in so far as their borrowing is concerned. These news comes after Freddie Mac announced to include cashflow data in the underwriting process which it claims is a step in the direction of identifying a historic of positive monthly cashflow activity as part of its technology’s loan purchase eligibility to further increase homeownership opportunities.

This is both a positive and negative thing. Positive in that it unlocks a world of opportunities for many people that were locked out of homeownership simply because of tainted reputation due to a few ‘gone wrong’ transactions, but also, what if the banks uncover a record of bad financial habits in the past that the borrower has worked on over the years to clean it up only to be flagged again?

The GSE in a statement claims that this innovation will be available to mortgage lenders nationwide through Freddie Mac automated underwriting system Loan Product AdvisorⓇ (LPASM).

“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,” said Terri Merlino, Freddie Mac Single-Family senior vice president and chief credit officer. “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.”

Although there are concerns about this new technology, the GSE has said that lenders are only supposed to send financial account data for LPA to identify 12 or more months of cash flow activity for inclusion in the risk assessment only with the borrowers consent.

This tool is interested in the following category of data; checking, savings and investment accounts (direct deposits of income and Interestingly, according to Freddie Mac’s press release, “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.”

In addition, it will be possible for lenders and brokers to obtain the bank account data from from third party providers using the same automated process they currently use to verify assets, income, employment and on time rent paymentthrough a single report via 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. “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.”

The GSE first started integrating such technologies in June especially technologies that automate underwriting services stating that its assets and Income Modelers in LPA would allow lenders to verify assets, incomes and employment using borrowerapproved bank account data.