Lenders are now rejecting Alternative Credit Profiles offered by borrowers when applying for a mortgage.

 

Borrowers must provide proof of adequate income, down payment and post closing reserves to a bank when applying for a mortgage. In addition, a credit history is rated in a scoring system called a FICO score. As we know a FICO score is obtained by having a proven credit history with at least 4 tradelines (Visa, MasterCard, auto loan, mortgage, etc.) and a history of 24 months of good payments.  Many people, such as students and new citizens did not have this longevity and therefore created an alternative credit profile in order to obtain a credit score.

 

The profile was made up of utility bills, canceled rent checks, medical premiums and the like. A FICO score could be obtained from this history and used to apply for a mortgage.

 

Currently, mortgage lenders are rejected this type of credit profile and FICO score. Borrowers without major tradelines and massive history of credit are no longer qualified for mortgages. Thus, eliminated another group of potential homeowners! In turn, slowing the housing market rebound by yet another factor, making our economic turnaround slower still.

 

Dale Siegel