Fannie Mae is out to make affordable housing more available for everyone. This move is evident in its latest Desktop Underwriter® that incorporates changes to its eligibility guidelines for automated approval of conventional loans. Embodied in the new guidelines is a more relaxed DU® risk assessment that makes for easy qualifying among a wide range of consumers. It is expected to hand out more approvals, including 100,000 new loan applicants every year.
This eased DU risk assessment might just be your key to accomplishing your new home purchase or refinance that was previously out of reach. [sc_content_link label=”Talk to a mortgage lender today.”]
What Does an Eased DU Risk Assessment Mean for You?
On the weekend of July 29, Fannie Mae unveiled its latest, DU® Version 10.1 and under this software update is a myriad of improvements to debt-to-income ratios, loan-to-value ratios, self-employment income, and other mortgage guidelines.
And the updated DU® offers a new automated risk analysis and approval system that is greatly relaxed compared with its predecessors.
What this means for you and anyone else seeking a conventional mortgage is a greater opportunity to get an Approve/Eligible recommendation from the Desktop Underwriter® without any changes to your credit profile.
This would be to the advantage of consumers who have issues with their self-employment status, student loan, loan-to-value ratio, especially those with high debt-to-income ratio — issues that would have normally lowered their chances of getting approved for a loan. Not anymore under the eased DU risk assessment.
Under the improved credit risk analysis, those who previously couldn’t qualify have a new opportunity, and those who did already qualify can qualify for more home and higher loans with less requirements.
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A Look at DU and Its Risk Management Features
Desktop Underwriter® is an automated underwriting system employed by lenders who want to determine whether a certain loan conforms with Fannie Mae’s eligibility standards.
It runs a comprehensive risk management and eligibility determination of a borrower’s loan application and issues a recommendation (i.e. Approve, Refer with Caution), with these two components:
Risk Assessment: This considers the borrower’s ability to repay the mortgage.
Eligibility Assessment: This determines whether the loan meets the credit standards of Fannie Mae.
Both have been updated under the DU 10.1 release.
Mortgage borrowers usually complete a loan application–Form 1003. Qualifying income, credit scores, credit history, and debt-to-income are some of the main things reported to the DU platform.
In the normal course of a final mortgage approval, the income and employment reported to the DU® need to be verified, which usually occurs during the processing and underwriting phases.
Under DU® Version 10.1, the debt-to-income ratio can be as high as 50%; self-employment and base income can simultaneously be verified. Even those borrowers with just an employment contract as proof of income can be verified.
Aside from its automated underwriting guidelines and comprehensive assessment of a borrower’s profile, the DU can alert lenders of potential red flags before the loan can be made or delivered to Fannie Mae.
The Desktop Underwriter® platform also contains Collateral Underwriter™, which provides a waiver of certain underwriting representations and warranties on property valuations that could lead to property inspection waivers, which is adopted in the latest DU® version.
Indeed, DU® Version 10.1 brings together practices, tools, processes, and initiatives including Day 1 Certainty™ previously made by Fannie Mae for greater speed and efficacy.
It’s interesting to note that Desktop Underwriter® is used to underwrite FHA loans and VA loans based on their respective guidelines.
Changes to the latest DU® release will impact loan applications submitted to it on or after the weekend of July 29, 2017. Applications that have already been submitted to DU® Version 10.0 and resubmitted after the weekend of July 29 will be underwritten using Version 10.0.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.