Tim Bradford 
Loan Officer 
VM/Cell (216) 324-8113 
FAX 440-884-5034 


   April 29, 2008 MORTGAGEE LETTER 2008-11
SUBJECT:     Nontraditional Credit Verification and Evaluation

 The Federal Housing Administration (FHA) has long permitted mortgage lenders to establish a borrower’s credit history through nontraditional means, including the compilation of performance on rental payments; utility bills; telephone and cellular phone services; cable television service; payments to local stores, etc.  This is further described in handbook HUD-4155.1 REV-5, paragraphs 2-3 and 2-4B. 

 This practice is appropriate when the borrower has insufficient trade lines with Equifax, Experian, or TransUnion and a credit bureau score cannot be derived.  Mortgage lenders also may use nontraditional credit verification to augment “thin-file” credit reports where a credit score was generated but based on only a few trade lines. However, nontraditional credit reports may not be used to enhance any poor credit history on a traditional credit report. 

 This mortgagee letter provides guidance to lenders and underwriters for establishing and evaluating nontraditional credit histories and also describes FHA’s acceptance of those enterprises that can develop a verifiable credit history, no less than 12 months in duration, for borrowers with limited traditional credit.  This guidance is effective immediately but must be considered for borrowers without traditional credit beginning with case numbers assigned 30 or more days after the date of this mortgage letter.  

Nontraditional Credit—Basic Guidance

 The following provides guidance in establishing that a borrower has sufficient credit references for evaluating bill paying habits, which include: three (3) credit references, including at least one from Group I, covering the most recent 12 months activity from date of application.  Group I references should be exhausted prior to considering Group II for eligibility purposes, as Group I is considered more indicative of a borrower’s future housing payment performance.  Borrowers with no Group I trade references will be underwritten using the criteria set forth under “insufficient credit” below.

Group I

rental housing payments (subject to independent verification if the borrower is a renter),
utility company reference (if not included in the rental housing payment), including
             ·        gas,
             ·       electricity,
             ·        water,
             ·       land-line home telephone service,
             ·       cable TV. 
If the borrower is renting from a family member, request independent documents to prove regularity of payments, such as cancelled checks.

Group II

·       insurance coverage, i.e., medical, auto, life, renter’s insurance (not payroll deducted);
·       payment to child care providers – made to a business providing such services;
·       school tuition;
·       retail stores – department, furniture, appliance stores, specialty stores;
·       rent to own – i.e., furniture, appliances;
·       payment of that part of medical bills not covered by insurance;
·       Internet/cell phone services;
·       a documented 12 month history of saving by regular deposits (at least quarterly/non-payroll deducted/no NSF checks reflected), resulting in an increasing balance to the account;
·       automobile leases,
·       or a personal loan from an individual with repayment terms in writing and supported by cancelled checks to document the payments.

Tim Bradford 
Loan Officer 
VM/Cell (216) 324-8113 
FAX 440-884-5034 



Tim Bradford -- OHIO MB.803389/LO.007173 ---- NMLS CO.142066/LO.250013
6363 York Road #300, Parma Heights, Ohio 44130

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