source:
  type: guide
  id: fnma-sel-b3-2-03
  authority: Fannie Mae Selling Guide B3-2-03 — Risk Factors Evaluated by DU
  description: Fannie Mae Selling Guide B3-2-03 — Risk Factors Evaluated by DU.
  coverage_tier: operative
obligations:
- id: fnma-sel-b3-2-03-full
  canonical_id: fnma-sel-b3-2-03-full
  section: Fannie Mae Selling Guide B3-2-03 — Risk Factors Evaluated by DU
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B3-2-03 — Risk Factors Evaluated by DU
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B3-2-03, Risk Factors Evaluated by DU (02/05/2025) Introduction
      This topic contains information on the risk factors evaluated by DU, including:
      Risk Factors Evaluated by DU Credit History Delinquent Accounts Installment
      Loans Rent Payment History Revolving Credit Utilization Public Records, Foreclosures,
      and Collection Accounts Inquiries Borrower’s Equity and LTV Ratio Liquid Reserves
      Loan Purpose Loan Term Loan Amortization Type Occupancy Type Published May 6,
      2026 282 Debt-to-Income Ratio Housing Expense Property Type First-time Homebuyer
      Cash Flow Assessment for Certain Loan Caseﬁles Risk Factors Evaluated by DU
      DU considers the following characteristics in the credit report to assess the
      creditworthiness of borrowers who have traditional credit histories: credit
      history, delinquent accounts, installment accounts, revolving credit utilization,
      public records, foreclosures, collection accounts, and inquiries. The non-credit
      risk factors evaluated by DU include: the borrower’s equity and LTV ratio, liquid
      reserves, loan purpose, loan term, loan amortization type, occupancy type, debt-to-income
      ratio, housing expense ratio, property type, and variable income. DU performs
      a comprehensive evaluation of these factors, weighing each factor based on the
      amount of risk it represents and its importance to the recommendation. DU analyzes
      the results of this evaluation along with the evaluation of the borrower’s credit
      proﬁle to arrive at the underwriting recommendation for the loan caseﬁle. More
      information on these risk factors is provided below. Also see below for information
      about the risk factors DU considers when evaluating loans where no borrower
      has a credit score. Credit History A borrower’s credit history is an account
      of how well the borrower has handled credit, both now and in the past. An older,
      established history—even though the accounts may have zero balances—will have
      a more positive impact on the borrower’s credit proﬁle than newly established
      accounts. A borrower who has no open credit accounts or a relatively new credit
      history (a few recently opened accounts) is not automatically considered a high
      credit risk. Successfully managing newly established accounts, including making
      payments as agreed, signiﬁes lower risk. Delinquent Accounts Payment history
      is a signiﬁcant factor in the evaluation of the borrower’s credit. DU considers
      the severity of the delinquencies (30, 60, 90, or more days late), the length
      of time since the delinquencies, and the number and type of accounts that were
      not paid as agreed. A payment history that includes bills that are 30 days or
      more past-due, or a history of paying bills late as evidenced by a number of
      accounts with late payments, will have a negative impact on the borrower’s credit
      proﬁle. The amount of time that has elapsed since an account was delinquent
      is an important factor included in the evaluation of the payment history. For
      example, a 30-day late payment that is less than three months old indicates
      a higher risk than a 30-day late payment that occurred several years ago. Published
      May 6, 2026 283 Installment Loans DU evaluates how well a borrower manages debt
      for all types of installment loans such as mortgage, second lien, auto, unsecured,
      and student loans. Research has shown that borrowers with no active installment
      accounts, or installment accounts that have a minimal reduction in balance,
      represent a higher risk than borrowers who have active installment accounts
      that have either paid down or paid oﬀ the installment debt. Rent Payment History
      For certain loan caseﬁles, DU can consider a borrower''s rent payment history
      identiﬁed on a 12-month third- party asset veriﬁcation report or a credit report.
      When DU logic can identify rent payments in the asset veriﬁcation report or
      credit report, it will use the rent payment history to positively supplement
      the credit risk assessment. The following requirements apply when using rent
      payment history in DU: At least one borrower must have been renting for at least
      12 months with a monthly rent payment of $300 or more and one of the following:
      have no mortgage reported on their credit report, have a limited credit history,
      or have no credit score. When the rent payment history does not appear on the
      credit report, for DU to be able to identify rent payments using an asset veriﬁcation
      report, the lender must enter the monthly rent paid by the borrower in the online
      loan application, obtain an asset veriﬁcation report with 12 months of bank
      statement data through an authorized DU validation service asset veriﬁcation
      report vendor, and conﬁrm the borrower is an account holder and that the account
      provided in the asset veriﬁcation report is the one from which the borrower
      pays rent. At the time of loan origination, the originating lender must have
      access to the full asset veriﬁcation report containing the data covering the
      period of time provided to DU for assessment. When an asset veriﬁcation report
      is used for both rent history and asset documentation, including asset validation
      through the DU validation service, only the most recent 60 days of account activity
      must be reviewed in accordance with the requirements in B3-4.2-02, Depository
      Accounts and B3-2-02, DU Validation Service, and retained in the loan ﬁle. For
      additional details on record retention, see A2-4.1-01, Establishing Loan Files.
      Revolving Credit Utilization The establishment, use, and amount of revolving
      credit a borrower has available are important. Trended credit data is used to
      evaluate the borrower’s ability to manage revolving accounts. A borrower who
      uses revolving accounts conservatively, meaning low revolving credit utilization
      or regular payoﬀ of revolving balance, is considered lower risk. A borrower
      whose revolving credit utilization is high or who has low available revolving
      credit is considered higher risk. Published May 6, 2026 284 Public Records,
      Foreclosures, and Collection Accounts A credit history that includes any signiﬁcant
      derogatory credit event is considered high risk. Signiﬁcant derogatory credit
      events include bankruptcy ﬁlings, foreclosures, deeds-in-lieu of foreclosure,
      preforeclosure sales, mortgage charge-oﬀs, or accounts that have been turned
      over to a collection agency. Note: Collection accounts reported as medical collections
      are not used in the DU risk assessment. Inquiries DU evaluates inquiries on
      the credit report. Research has shown that a high number of inquiries can indicate
      a higher degree of risk. However, multiple inquiries made by diﬀerent mortgage
      lenders or diﬀerent auto loan creditors within the same time frame is not viewed
      by DU as multiple inquiries (these types of inquiries generally reﬂect borrowers
      shopping for favorable rates or terms). A borrower who has frequently applied
      for, or obtained, new or additional credit represents a higher risk. Borrower’s
      Equity and LTV Ratio The amount of equity in the property is a very important
      component of the risk analysis. Research has shown that a borrower who makes
      a large down payment or who has considerable equity in their property is less
      likely to become delinquent on a mortgage loan than a borrower who makes a small
      down payment or has a small amount of equity in the property. In other words,
      the more equity a borrower has in the property, the lower the risk associated
      with the borrower’s mortgage loan. DU may use a low LTV ratio to oﬀset other
      risks that it may identify in the loan application. Liquid Reserves Liquid reserves
      are those ﬁnancial assets that are available to a borrower after a loan closes.
      Reserves are calculated as the total amount of liquid assets remaining after
      the loan transaction closes divided by the qualifying payment amount. DU considers
      higher amounts of liquid reserves as more favorable than lower amounts or no
      reserves. Research has shown that mortgages to borrowers with higher amounts
      of liquid reserves tend to have lower delinquency rates. As with a low LTV ratio,
      DU may consider high amounts of reserves as an oﬀset for other risks that it
      may identify in the loan application. Loan Purpose There is a certain level
      of risk associated with every transaction, whether it is a purchase or a reﬁnance.
      Purchase transactions represent less risk than reﬁnance transactions. When evaluating
      reﬁnance transactions, a limited cash-out reﬁnance transaction represents less
      risk than a cash-out reﬁnance transaction. Published May 6, 2026 285 Loan Term
      Research has shown that mortgages to borrowers who choose to ﬁnance their mortgages
      over shorter terms and build up equity in their properties faster generally
      tend to perform better than mortgages with longer amortization periods. Loan
      Amortization Type Research has shown that there is a diﬀerence in loan performance
      based on the manner in which the mortgage amortizes. Fixed-rate mortgages will
      be viewed as representing less risk than adjustable-rate mortgages. Occupancy
      Type Performance statistics on investor loans are notably worse than those of
      owner-occupied or second home loans. Owner-occupied transactions represent the
      least risk, followed by second home transactions, and investment property transactions
      having the highest risk level. Debt-to-Income Ratio In DU’s evaluation, generally,
      the lower the borrower’s debt-to-income ratio (DTI ratio), the lower the associated
      risk. As the ratio increases, the level of risk also tends to increase; and
      a high ratio will have the greatest adverse impact on the recommendation when
      there are also other high-risk factors present. The composition of the borrower’s
      debt is also taken into consideration, speciﬁcally those with student loan debt.
      Housing Expense Borrowers whose housing expense makes up a smaller portion of
      their total expenses are considered lower risk, while those with a housing expense
      that makes up a higher portion of their total expenses are considered higher
      risk. Research has shown that borrowers whose total monthly expenses are composed
      primarily of their housing expense may ﬁnd it more diﬃcult to pay this expense
      when experiencing an event that would cause ﬁnancial distress, such as the loss
      of a job. Property Type Another important factor that DU considers in the risk
      analysis is the collateral or property type. DU diﬀerentiates the risk based
      on the number of units, and in some cases the property type (e.g., manufactured
      home). The level of risk associated with each property type is as follows, starting
      with those property types representing the least amount of risk: Published May
      6, 2026 286 one-unit properties; condo and co-op properties; two-, three-, and
      four-unit properties; manufactured homes. First-time Homebuyer The presence
      of a ﬁrst-time homebuyer on the loan application is considered a mitigating
      factor in the DU risk assessment. Cash Flow Assessment for Certain Loan Caseﬁles
      For certain loan caseﬁles, DU can conduct a cash ﬂow assessment when the lender
      provides a 12-month third- party asset veriﬁcation report for the borrower.
      DU will assess the borrower''s cash ﬂow management history to determine whether
      it can be used to positively supplement the credit risk assessment. To be eligible
      for the cash ﬂow assessment in DU The lender must obtain an asset veriﬁcation
      report with 12 months of bank data through an authorized DU validation service
      asset veriﬁcation report vendor and conﬁrm the borrower is an account holder.
      At the time of loan origination, the originating lender must have access to
      the full asset veriﬁcation report containing the data covering the timeframe
      provided to DU for the cash ﬂow assessment. When DU conducts a cash ﬂow assessment
      and provides an Approve/Eligible recommendation, the 12-month asset veriﬁcation
      report may also be used to satisfy the nontraditional credit history requirements
      when one is required for any borrower without a credit score as outlined in
      B3-5.4-03, Documentation and Assessment of a Nontraditional Credit History.
      When an asset veriﬁcation report is used for both the cash ﬂow assessment and
      asset documentation, including asset validation through the DU validation service,
      only the most recent 30 or 60 days of account activity must be reviewed in accordance
      with the requirements in B3-4.2-02, Depository Accounts, and B3-2-02, DU Validation
      Service, and retained in the loan ﬁle. For additional details on record retention,
      see A2-4.1-01, Establishing Loan Files. Note: If a 12-month asset veriﬁcation
      report is not obtained, nontraditional credit references may be required for
      each borrower without a credit score. See B3-5.4-01, Eligibility Requirements
      for Loans with Nontraditional Credit. Recent Related Announcements The table
      below provides reference to recently issued Announcements that are related to
      this topic. Announcements Issue Date Announcement SEL-2025-01 February 05, 2025
      Published May 6, 2026 287 Announcements Issue Date Announcement SEL-2023-11
      December 13, 2023 Announcement SEL-2023-01 February 01, 2023 Announcement SEL-2022-09
      October 05, 2022 Announcement SEL-2021-08 September 01, 2021 Announcement SEL-2021-07
      August 04, 2021 Announcement SEL-2021-02 March 03, 2021 Announcement SEL-2020-07
      December 16, 2020'
  judgment: false
