New Freddie Mac rule makes it easier to buy a house in 2022

Freddie Mac wants to “level the playing field” for home buyers

Freddie Mac is yet again expanding the financial data that mortgage lenders can utilize when evaluating potential home buyers. Starting in November, borrowers can use up to 12 months of checking, savings, or investment account statements to prove positive cash flow and improve their chances of qualification.

This update should help “level the playing field,” according to Freddie Mac, making it easier for first-time buyers and “underserved communities” to purchase homes. Here’s what to know about the program.

Freddie Mac’s Bank Statement Cash Flow (BSCF) program

Freddie Mac’s new program, called the “Bank Statement Cash Flow (BSCF)” program, will officially go live on November 6. That means lenders can start incorporating bank statement data immediately. This data can be obtained directly using third-party service providers, and checking, savings, and investment accounts are all eligible.

This latest update comes just months after Freddie Mac announced it would incorporate rental payment history into its underwriting platform — a move made to expand homebuying opportunities using alternative credit data.

If a borrower is on the edge of qualifying and can show they regularly have positive cash flow in their bank accounts, this update will improve their chances of approval.

As Terri Merlino, single-family senior vice president and chief credit officer at Freddie Mac, explains, “With the addition of positive monthly cash flow data, our underwriting system can help with more accurately predicting a borrower’s ability to pay their mortgage because it uses a comprehensive view of how personal finances are managed over time.”

Technically, Freddie Mac’s new program is an update to its automated underwriting system, the Loan Product Advisor (LPA), which lenders — at least those that offer conforming loans — use to assess borrower qualifications and analyze risk.

To make the update more impactful, the LPA system will also identify when a borrower could potentially benefit from submitting banking data and notify their lender.

How will Freddie’s new rule help home buyers?

The new rule can “only positively affect the borrower’s credit risk assessment.” That means if a borrower is on the edge of qualifying and can show they regularly have positive cash flow in their accounts, it will improve their chances of approval. If it doesn’t show that, it won’t hurt those chances.

“Our latest innovation levels the playing field and helps make homes more accessible to borrowers whose lenders might not have qualified them with traditional methods of underwriting,” Merlino says. “This should particularly help first-time homebuyers and underserved communities.”

To be clear: The update doesn’t allow borrowers to qualify solely on their bank statements alone. But it does offer yet another data point for lenders to consider when evaluating their risk and ability to repay the loan.

Who will benefit from the new lending rule?

It seems like a simple update, but the addition of cash flow data could be huge — especially considering the market share that’s involved.

While Freddie Mac isn’t a lender, it (and its fellow GSE Fannie Mae) is a major purchaser of mortgage loans. If lenders want the chance to sell their loans to these companies, they need to adhere to the guidelines they set out — and use their underwriting platforms.

And a lot of lenders do. In fact, according to the Urban Institute, about 67% of outstanding mortgage debt was held by Fannie Mae or Freddie Mac in September 2022. GSE loans also accounted for nearly half of all mortgage originations in the second quarter of 2022.

There’s no way to gauge exactly how many buyers will benefit from the change, but if you look at Freddie Mac’s previous rollouts, it might be a lot. A whopping 70,000-plus have already enrolled in the GSE’s credit score-building initiative, which works with multifamily operators to report on-time rent payments for hopeful homebuyers. More than two-thirds of enrollees have already seen a credit score increase.

Your next steps

Many loans are issued according to Freddie Mac guidelines, but not all of them. If you think you could benefit from the GSE’s new bank statement allowance, make sure you use a lender and conforming loan program that follows Freddie’s underwriting standards.

Most mortgage lenders issue these types of loans, but if you need help, talk to a loan officer or mortgage broker and tell them you’d like to take advantage of Freddie Mac’s new bank statement cash flow program. They can point you to the appropriate loan for your needs.