Enhancements to Credit Risk Assessment in Lending

This technical report details the updates introduced in Version 12.0 of Fannie Mae's Desktop Underwriter (DU), aimed at enhancing the credit risk assessment process. The report outlines the adjustments made to the risk factors evaluated by DU, including the removal of certain features from the Debt-to-Income ratio and the introduction of first-time homebuyer status as a mitigating factor. Additionally, it describes the expanded use of rental payment history and the Cashflow assessment capability to support borrowers with limited or no credit histories. The report highlights the performance improvements observed, including a 14% gain in rank-order performance and a 4.5x increase in accuracy metrics. Furthermore, it discusses the potential for more frequent updates to the DU Risk Assessment in response to evolving market conditions, with plans for up to four updates annually starting in 2025. These enhancements aim to increase access to credit for various borrower populations while maintaining a comprehensive evaluation of mortgage delinquency risk.