Waterstone Mortgage using nontraditional credit data in underwriting
Waterstone Mortgage is now qualifying borrowers without a traditional credit history for both its conventional and government mortgage programs.
The company will underwrite using other payment history indicators, such as cell phone bills, rent payments, utility payments and insurance premiums.
There are 254 million people over the age of 18 living in the U.S. as of June 2018, according the Census Bureau. Within that group, there are 26 million who lack a credit score, and an additional 19 million who have limited or outdated credit histories, according to Consumer Financial Protection Bureau estimates.
"While a credit score is certainly very useful for determining a homebuyer's ability to pay their mortgage payment, other payment indicators — such as bills that are consistently paid in full and on time — can be extremely telling," Kim Newby, senior vice president of investor relations product development at Waterstone Mortgage, said in a press release.
"Of course, the Non-Traditional Credit Program is ideal for borrowers who only use cash, debit, or personal checks on a regular basis. But it's also designed for those who have had credit cards or loans in the past, but who haven't utilized credit in more than two years," Newby said. "Also, recent immigrants who haven't yet established a credit score in the United States could benefit from this program, as well as young adults and recent college graduates who are just beginning to build their credit."
For many years, advocates have argued mortgage lenders should increase their data sources used for underwriting loans to serve "credit invisible" borrowers. Both Freddie Mac and Fannie Mae permit using their respective automated underwriting systems to underwrite borrowers that lack credit scores, but some lenders do not make these loans.
VantageScore Solutions, a competitor to FICO that has little traction in the mortgage business because it is not used by Fannie's or Freddie's automated underwriting systems, also has attempted to reach the underbanked by introducing an expanded criteria scoring model in 2013.
FICO came out with its own model, UltraFICO, in October 2018. UltraFICO used consumer bank account data to expand access to credit. Freddie and Freddie still underwrite loans using an older version of FICO.
As for the needs of newcomers to the U.S., in 2017, Bank of the West rolled out a mortgage program tailored to recent immigrants that used materials from foreign governments as well as overseas financial institutions as part of the underwriting process.