Freddie Mac introduces new innovation in its automated underwriting system

Freddie Mac will roll out a new innovation to mortgage lenders nationwide through Freddie Mac’s automated underwriting system, Loan Product Advisor (LPA), starting Nov. 6.

© Shutterstock

The innovation facilitates a review of a borrower’s bank account data to identify a history of positive monthly cash flow activity as part of its technology’s loan purchase eligibility assessments.

“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.”

How it works is, with the borrower’s permission, lenders and brokers can submit financial account data for LPA to identify 12 or more months of cash flow activity for inclusion in the tool’s risk assessment. The data can be obtained from checking, savings, investment accounts, and monthly bill payments, such as rent, utilities, and auto loans. The data submitted can only positively affect the borrower’s credit risk assessment.

Lenders and brokers can obtain the data from designated third-party service providers using the same automated process they currently use to verify assets, income (using direct deposit), employment, and rent payments.

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

Service providers supporting Freddie Mac’s LPA borrower cash flow assessment include Blend, Finicity (a MasterCard company), FormFree, and PointServ.