You may have heard in the news that Fannie Mae, one of the nation’s largest government-sponsored buyers of mortgages, will be launching its trended credit data initiative on June 25. That means mortgage case files will only be processed by Fannie Mae if they include trended credit data, also called trended data.

But what is trended data? Why is Fannie Mae using trended data? And how will trended data affect a person’s ability to qualify for a mortgage?

Unlike traditional credit reports that only show the credit balance, the amount of available credit, and whether a borrower has been making payments on time, trended credit data goes much deeper. Trended data shows historical information on the balance, the scheduled payment, and the actual payment made each month for revolving credit accounts for the last 24 months.

Responding to pressure from consumer groups and politicians, Fannie Mae decided to revisit the credit scoring criteria used by Desktop Underwriter software to conduct credit risk assessments and determine if a loan meets Fannie Mae’s eligibility requirements. Equifax and TransUnion, two of the major credit reporting bureaus, will provided trended data.

According to Fannie Mae, research has shown that borrowers who never exceed their credit limit are 75 percent less likely to become delinquent than those who exceeded their credit limit within the last 12 months. Also, borrowers who pay their credit card bills in full every month are 60 percent less likely to become delinquent than those who make minimum payments.

So what does all of this mean for borrowers?

Trended data will place borrowers into two categories – transactors and revolvers. Transactors are borrowers who pay their full credit card balance each month, while revolvers make minimum or partial payments and carry a balance.

According to Fannie Mae, people who typically pay the full balance will be more likely to qualify. In addition to credit cards, merged trended data reports will show payment and balance data for mortgage loans, rent, utilities and other bills. Keep in mind that this report indicates not just payment history, but payment habits, or trends.

For example, home buyers should not empty their bank accounts to pay off their credit card balances because of trended data. In fact, this could make it more difficult to qualify for a mortgage because you’ll have less cash on hand. If you usually make minimum payments but decide to be more aggressive in the three months leading up to your mortgage application, trended data will show the two-year history, not just how you’ve paid your bills for the last three months.

Some critics claim that trended data will make it more difficult for certain borrowers to qualify for a mortgage. However, the folks at Fannie Mae say that trended data will reward transactors but not penalize revolvers who meet their obligation each month but struggle to pay bills in full.

Others believe trended data will help first-time home buyers. Credit score, income and assets are expected by many industry experts to be weighted more heavily than trended data. Also, we’re still not sure what timeframe qualifies someone as a transactor or evolver. Is it six months of a certain behavior? Nine months? 12 months?

We cannot emphasize enough that this is a new formula for credit modeling that is still being evaluated. It’s important that you do not take action to change your credit without understanding how it can affect your credit score.

The truth is, we don’t know exactly how trended data will affect mortgage lending, if at all. This is the first real change to the mortgage credit report in about a quarter century.

What we can say with total confidence is that any news about trended data should not discourage anyone from buying a home. Greenway Mortgage is on top of it. We’ll continue to monitor the use of trended data and keep you informed.