[Loan Doctor]

Consideration of Authorized User Accounts
This is from the Fannie Mae update effective 31 May 08. FHA loans are not effected by this at this time. Freddie Mac has not made a similar determination yet.

"As stated in Announcement 08-08, DU Version 7.0 will not take into consideration credit report trade-lines in which the applicant has been designated as an “authorized user.” If the mortgage loan falls into the instance stated in Announcement 08-08 where the lender has information available that an applicant is an authorized user on a spouse’s credit report trade-line, and that spouse is not an applicant in the mortgage transaction, the lender must manually underwrite the mortgage loan in order to ensure such “authorized user” trade-lines are taken into consideration in its underwriting decision."

What this means is that the credit scores with the AU will still help, but if the borrower does not have the minimum number of trade-lines that are old enough, then the loan will not be approved for sale to Fannie Mae.

Charles

[Hedwig]

And they're getting around the ECOA problem by specifying that if it's a spousal AU account it must still be considered, correct?

Aren't most mortgages manually underwritten? I always thought that someone evaluated all the data on mortgage loans manually anyway.

[jlynn]

I think he meant the reports would have to be manually re-scored - probably utilizing a different model.

That's what we have said all along. Lenders will have to manually rescore all reports with spousal AU's present if utilizing FICO 08, to not run afoul of the ECOA.

Even Loan Doctor's quote above is dangerous. Lenders cannot discriminate based on marriage status, so how they can limit it to "spousal AU's", is a slippery slope, IMHO.

[jlynn]

(i) The credit history, when available, of accounts designated as accounts that the applicant and the applicant's spouse are permitted to use or for which both are contractually liable;

Wonder if some court will have to determine what that AND means? What if I made jlynnjr, and her hubby an AU on one of my accounts, would it then have to be scored?

[apexcrsrvc]

Simple question, how are they going to know if the "spouse" is the primary account holder? Rely on someone to tell them that the account holder isn't and losing the loan thereby? That is a rather naive notion and it also shifts the burden to the applicant to prove that the spouse is the account holder. You can't issue or decline to issue a loan based upon martial status.

Moreover, what if both husband and wifer are applying but, one spouse has too low of a score but, must be on the app for income purposes? That's where this statement violates the ECOA. Read and apply this to Fannie Mae's statement . . .

(6) Credit history. To the extent that a creditor considers credit history in evaluating the creditworthiness of similarly qualified applicants for a similar type and amount of credit, in evaluating an applicant's creditworthiness a creditor shall consider:
(i) The credit history, when available, of accounts designated as accounts that the applicant and the applicant's spouse are permitted to use . . .

Under sub-section (6)(i), a lender must consider these accounts. Therefore, Fannie Mae is going to violate the ECOA in the scenario I presented above.

I see this forcing person A and their spouse to get added to the same account and then, only one applying for the loan. Or, you could see mass litigation shortly.

[apexcrsrvc]

I have to say that some of the language is confusing after reading the whole Announcement. See https://www.efanniemae.com/sf/guides.../2008/0808.pdf

There seems to be a delineation to drawn between manual reviews and automated underwriting. That is to say, that it seems that the consideration of authorized user accounts, or non-consideration, only comes into light in the context of manual reviews.

Is that a correct reading of the above?

I think so because the Announcement clearly states that Desktop Underwriter will not consider AU accounts whatsoever. That is a clear violation of the ECOA insofar as I presume that DU is tri-merge of sorts with more data but, certainly credit information and a score. Again, the ECOA states these must be scored or the model is invalid. Further, whatever lender that uses such a model may be found liable thereunder.

However, and thereafter, the Announcement goes on to state that in instances where the lender has occasion to note that a spouse is a holder an account whereupon the applicant is an authorized user, the account must be manually underwritten and by extension, I deduce the entire application.

My question is how would the lender have such occasion to note this since it isn't apparent from the tradeline itself? Moreover, how does the lender "manually" underwrite something that has been omitted?

There is also language that states that accounts shall be scored if the applicant can provide written documentation that they've paid the account themselves for 12 months. That is ambigious. What does "documentation" mean? Seems that it implies anything on a piece of paper which could lead to outright fraud and probably will.

Then there is the second paragraph which states AU accounts must be scored if the holder spouse ins't involved in the transaction. What if they are, does the account not receive consideration? That is the inference I take away. If I am correct, that could lead to considerable litigation.

[centex]

There shouldn't be a problem with the decision not to allow DU7 to score AU accounts because it defaults them to manual underwriting. As a result, the decisioning still takes into account those AU TL's that were within the spirit of both the ECOA and the FNMA underwriting guidelines.

Demonstrating that the account was an AU status through the spouse is not a difficult thing. The only people inconvenienced will be those that purchased AU tradelines or where they convinced Aunt Suzie's next door neighbors third cousin's sister to add someone as an AU. And if one is having to rely on either of those situations in order to be 'mortgage-worthy' then I would suggest that they really do not have the creditworthiness in this climate to be considered for a 30-year $200K loan, collateralized or not.

[apexcrsrvc]

Originally Posted by centex

There shouldn't be a problem with the decision not to allow DU7 to score AU accounts because it defaults them to manual underwriting. As a result, the decisioning still takes into account those AU TL's that were within the spirit of both the ECOA and the FNMA underwriting guidelines.

Demonstrating that the account was an AU status through the spouse is not a difficult thing. The only people inconvenienced will be those that purchased AU tradelines or where they convinced Aunt Suzie's next door neighbors third cousin's sister to add someone as an AU. And if one is having to rely on either of those situations in order to be 'mortgage-worthy' then I would suggest that they really do not have the creditworthiness in this climate to be considered for a 30-year $200K loan, collateralized or not.

No, actually, it doesn't appear to when both spouses are on the app. It evidently only considers AU accounts when the holder spouse isn't involved in the app. That is coming from the Announcement and it seems problematic in rather common contexts that play out quite frequently.

[centex]

Originally Posted by apexcrsrvc

No, actually, it doesn't appear to when both spouses are on the app. It evidently only considers AU accounts when the holder spouse isn't involved in the app. That is coming from the Announcement and it seems problematic in rather common contexts that play out quite frequently.

The applicant is still not disadvantaged by being bounced for manual review. Their AU account, properly documented, is considered, which means the review is still consistent with the intent of the ECOA.

My guess is that those manual reviews will also reveal other factors that are legally sufficient for a denial where the applicant was having to rely on an artificially propped score in order to seek the mortgage. While I have no doubt that someone will try to push through some form of frivolous litigation, I see a number of prospective plaintiffs that will have egg on their faces when all is said and done...

[apexcrsrvc]

I agree that the applicant isn't disadvantaged presuming that the spouse applying is an authorized user on the holder spouses account and that said holder spouse is "not" otherwise involved in the mortgage application. Otherwise, the account isn't considered pursuant to the Announcement.

The language indicates that if both spouses apply together (which is only logical), for example, DTI/income purposes, then the AU accounts of the spouse that isn't the holder will not be considered. Therefore, it is imminent that "spouses" are going to be declined because the AU spouse is going to have a score that doesn't meet the threshold under this system. However, if the AU's were considered, they would.

That last sentence is largely immaterial insofar as under the scenario above the mere non-consideration of the AU account is a violation of the ECOA. And, it will occur time and time again for the simple reasons that I mentioned.

Now, your statements as to other reasons for a decline, while speculative, may mitigate some of the liability. However, it won't relieve them of liability alltogether. That model still violates the ECOA and it's legislative intent.

I don't really see this as frivilous due to the number of people it will affect but, that subjective term I suppose is a matter of perception.

[Hedwig]

Originally Posted by apexcrsrvc

There is also language that states that accounts shall be scored if the applicant can provide written documentation that they've paid the account themselves for 12 months. That is ambigious. What does "documentation" mean? Seems that it implies anything on a piece of paper which could lead to outright fraud and probably will.

When my ex applied for a mortgage shortly after we divorced and he remarried, we still had some joint accounts that I was paying.

He asked for copies of the checks to show I had been paying them since divorce (my account, my signature on the checks). I did provide them, after blacking out all the account numbers, of course.

I suppose that is the kind of proof they would want--something concrete showing that they paid it, such as checks on their account that they signed.

[jlynn]

Here is a link to 0801, which is the original announcement and is referenced in 0808
https://www.efanniemae.com/sf/guides.../2008/0801.pdf

"if another borrower on the mortgage is the owner of the tradeline".

This is not what the ECOA says, and looks like why the clarified with 0808.

If another borrower is not the owner, but the co-borrower has spousal AU accounts, then they must be scored.

I'm interpreting it to say if jlynn and her mother are buying a house together, and either jlynn or her mother have AU accounts, which belong to their respective spouses, then those lines must be scored.

If some lender interprets one of those announcements, without the other, some lender is going to screw up.

Regardless, that's going to leave some doors wide open, as they will have to inquire into marital status to make that detrmination.

[jlynn]

Originally Posted by jlynn

I'm interpreting it to say if jlynn and her mother are buying a house together, and either jlynn or her mother have AU accounts, which belong to their respective spouses, then those lines must be scored.

Even that scenario may run afoul of the law.

(i) The credit history, when available, of accounts designated as accounts that the applicant and the applicant's spouse are permitted to use or for which both are contractually liable;

[Loan Doctor]

The investor I was talking with says that his understanding is that the borrower must have a minimum of 3 trade-lines that are not AU trade-lines. It has nothing to do with the credit scores.

I will keep you informed as June progresses. Most of what is being done is FHA and VA however, so it might be a while before I get some history on the new version.

Charles

[apexcrsrvc]

Thanks for the clarification. This has been the policy of a lot of lenders for some time (Flagstar for example).

If so, the announcement is kind of superfluous.

Let me ask you one last thing, are these directive or discretionary. I mean must lenders use the guidelines of the announcement or may they elect to use them?