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Experts Clarify Credit Report Confusion at the GSEs

By Faye Mergel
Published: Sunday, October 25th, 2009

Consumer educators noted that there have been many complaints lately regarding the policies of government-sponsored enterprises (GSEs) on acceptable credit report life cycles. Consumers are, likewise, confused about which credit rating models are accepted by Fannie Mae and Freddie Mac, GSEs which provide mortgage security to lenders, so they can provide Americans with low interest loans. Credit reporting agencies (CRAs) are getting questioned lately regarding their models, prompting experts to launch education programs to consumers.

Experts Clarify Credit Report Confusion at the GSEsIn June, Fannie Mae issued Announcement 09-19 of the Selling Guide. As explained by experts, this reduced the life cycle of mortgage credit reports by 30 and 60 days, depending on the type of loan. For mortgage products on homes which already exist, the life cycle of a credit report was reduced to 90 days from its previous 120 days. The life cycle will start from the day the report was issued.

Life cycle of the credit report for mortgage products on new home construction was reduced from 180 days to 120 days. The period, likewise, starts on the day the report was issued. Experts advise consumers that these new periods of reductions include all types of credit documentation, not only consumer reports. Employment, asset and income verification documents will also follow the same life cycles, depending on the type of home being applied for financing.

Home industry experts have not noted any changes yet in Freddie Mac regarding its age of credit of documents, but they advise consumers to follow the same guidelines with Fannie Mae since both GSEs are closely linked.

Regarding the approved scoring models, CRAs are encouraged to submit some of the older or not yet approved credit scoring models. Those models will be reviewed and could probably be used in the future. At present, only the following models are accepted by GSEs: Equifax Beacon 5.0, TransUnion FICO Risk Score 04, and Experian/Fair Isaac Risk Model V2.

Consumers who have not yet tried applying for government-secured loans are advised to know more on how they could qualify. Fannie Mae, which is short for Federal National Mortgage Association, assumes risks of loan defaults for borrowers it sponsors. This allows lenders to grant loans at lower interest rates.
Fannie Mae grants 5-year adjustable rate mortgage, loans which have a fixed rate for the first 5 years. On the other hand, Federal Home Loan Mortgage Corporation, or Freddie Mac, also provides similar services with Fannie Mae. Qualifications are most based on consumer debt standing.

Consumers are advised to review their credit report carefully before going to GSEs so they can check for errors or inaccuracies.

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