SALISBURY, Md. -- More than 50 million consumers--an estimated 25% of the mortgage market--do not qualify for mortgages because they do not have traditional lines of credit such as credit cards or student loans. However, many of them pay their rent, gas, electric and phone bills on time--factors that are not included on a credit report unless they are paid late.
Credit unions looking to expand their mortgage business might want to consider a new service that provides financial institutions with alternative credit reports.
Allen Johnson, Credit Plus chief sales and marketing officer, said that a thin credit file does not necessarily mean that a credit applicant is a bad credit risk.
Johnson said that alternative credit reporting, although new to the industry, can help lenders increase their lending base and extend loans to an underserved population. He said Flagstar Bank has increased its FHA loan business by 50% using the reports.
Following on the heels of a mortgagee letter released in April that expanded the agency's guidelines for establishing and evaluating nontraditional credit histories, Credit Plus, a credit information provider based here, beefed up its PRBC reports to include Fair Isaac Corp.'s FICO expansion score. The expanded score uses the traditional 300-850 score range.
Johnson said the reports provided by his company meet Fannie Mae, Freddie Mac and FHA guidelines for the use of nontraditional credit.
While FHA has accepted alternative credit data in the establishment of a credit history for some time, the guidelines issued in April provide mortgage professionals with information on helping with little to no traditional credit history.
Included in FHA's letter is information on what type of credit references it will accept in establishing a bill payment history and how to make data reliable for use in credit scoring and underwriting decisions.
Rent, cable, phone, childcare, insurance, electric, gas, appliance rental, furniture lease and cell phone bills are all factors that are not taken into account with a traditional FICO score. Johnson said those components are included in a Credit Plus PRBC report.
"It's a perfect fit in this market to be able to help more consumers with their credit history," Johnson said.
He added that the alternative credit reporting system is ideal for recent high school graduates, college graduates and immigrants--people who pay their bills on time but who have not established traditional lines of credit.
--burdenlisa.yahoo.com
