New Fannie Mae Rules Allow for ‘Non-Traditional’ Credit Histories

Mortgage guarantor Fannie Mae is easing its credit requirements for homebuyers, in the hopes of expanding the benefits of homeownership to qualified borrowers who may not have a traditional credit history.

FannieMae, a company which backs mortgages made by private lenders and sells those loans in bundles as securities, announced Monday that it will allow lenders to use alternate forms of credit information to qualify applicants.

Up to this point, lenders would input borrower data into Fannie Mae’s automated system to find out if the borrower was eligible for a loan. Borrowers without Fair Isaac Corp. credit scores would require lenders to manually determine their creditworthiness. This process put lenders at greater risk if those loans failed in the future.

Now Fannie Mae will allow even borrowers without a FICO score to be entered into the automated system. And where paystubs and tax records used to be the gold standard, the new process will admit information like employment and income histories from credit bureau Equifax’s databases as proof of creditworthiness.

Proponents of the new rules say that they will especially help certain minority groups that often do not have traditional credit scores and backgrounds. These groups also tend to have lower incomes and smaller down payments for home purchases. Now those factors may not be as much of a hindrance to obtaining mortgage loans if they can show in other ways that they are likely to make their monthly payments.

The new process builds on a policy change from August that allows borrowers to count income from all household members toward their ability to afford a mortgage. All the changes are directed at easing lending standards that have been historically strict since the mortgage meltdown in 2008. During the past seven years, low-income and those with less-than-perfect credit or no credit history have had an almost impossible time trying to qualify for home loans. Fannie Mae is hoping to get more credit into the hands of those who can manage a mortgage but do not have the traditional financial credentials behind them.

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