Freddie Mac to help borrowers improve their odds of mortgage loan approval

Firm will include a borrower's positive cash flow data as part of its credit risk assessment

Freddie Mac to help borrowers improve their odds of mortgage loan approval

Freddie Mac said Monday that it will include a review of a borrower’s bank account data as part of its loan purchase eligibility assessments to help increase a borrower’s chances of qualifying for a mortgage.

Starting November 6, the mortgage giant will add positive monthly cash flow data to its automated underwriting system, Loan Product Advisor (LPA).

Terri Merlino, Freddie Mac Single-Family chief credit officer, explained that the underwriting development can help provide a more accurate prediction of a borrower’s ability to pay their mortgage “because it uses a comprehensive view of how personal finances are managed over time.”

“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,” Merlino said. “This should particularly help first-time homebuyers and underserved communities.”

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With the borrower’s permission, lenders and brokers nationwide can submit financial account data for LPA to identify 12 or more months of cash flow activity to be included 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. LPA will notify lenders when submitting additional account data that can positively affect the borrower’s credit risk assessment.

Lenders and brokers can collect 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). These service providers include Blend, Finicity, FormFree, and PointServ.

“Working alongside our industry partners, we have made significant progress toward modernizing the mortgage origination process,” said Kevin Kauffman, vice president of client engagement at Freddie Mac Single-Family. “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.”