Lack of traditional credit or a Borrower’s decision to not use credit may not be used as the sole basis for rejecting the mortgage application. For Borrowers without a credit score, the Mortgagee must either obtain a Non-Traditional Mortgage Credit Report (NTMCR) from a credit reporting company or independently develop the Borrower’s credit history.
Non-Traditional Mortgage Credit Report
A NTMCR refers to a type of credit report designed to access the credit history of a Borrower who does not have the type of trade references that appear on a traditional credit report and is used either as:
• a substitute for a Tri-Merged Credit Report (TRMCR) or a Residential Mortgage Credit Report (RMCR); or
• a supplement to a traditional credit report that has an insufficient number of trade items reported to generate a credit score.
Mortgagees may use an NTMCR developed by a credit reporting agency that verifies the following information for all non-traditional credit references:
• the existence of the credit providers;
• that the credit was actually extended to the Borrower; and
• the creditor has a published address or telephone number.
The NTMCR must not include subjective statements such as “satisfactory” or “acceptable,” must be formatted in a similar fashion to traditional references, and provide the:
• creditor’s name;
• date of opening;
• high credit;
• current status of the account;
• 12-month history of the account;
• required monthly payment;
• unpaid balance; and
• payment history in the delinquency categories (for example, 0x30 and 0x60)
Independent Verification of Non-Traditional Credit Provider
The Mortgagee may independently verify the Borrower’s credit references by documenting the existence of the credit provider and that the provider extended credit to the Borrower.
• To verify the existence of each credit provider, the Mortgagee must review public records from the state, county, or city or other documents providing a similar level of objective information.
• To verify credit information, the Mortgagee must:
o use a published address or telephone number for the credit provider and not rely solely on information provided by the applicant; and
o obtain the most recent 12 months of canceled checks, or equivalent proof of payment, demonstrating the timing of payment to the credit provider.
• To verify the Borrower’s rental payment history, the Mortgagee must obtain a rental reference from the appropriate rental management company, provided the Borrower is not renting from a Family Member, demonstrating the timing of payment of the most recent 12 months in lieu of 12 months of canceled checks or equivalent proof of payment.
Sufficiency of Credit References
To be sufficient to establish credit history, three credit references must be used, including at least one of the following:
• rental housing payments (requires independent verification if Borrower is a renter);
• telephone service; or
• utility company reference (if not included in rental housing payment), including gas, electricity, water, television or Internet service.
If the Mortgagee cannot obtain all three credit references from the list above, the Mortgagee may use the following sources of unreported recurring debt:
• insurance premiums not payroll deducted (e.g. medical, auto, life, renter’s insurance);
• payment made to child care provider businesses that provide such services
• school tuition;
• retail store credit cards (e.g. department, furniture, appliance stores);
• rent-to-own (e.g., furniture, appliances);
• medical bill payments not covered by insurance;
• personal loan from an individual with repayment terms in writing and supported by canceled checks to document payments;
• automobile lease; or
• 12-month savings history evidenced by regular deposits resulting in an increased balance to the account that:
o were made at least quarterly;
o were not payroll deducted, and;
o caused no insufficient funds (NSF) checks
• 12-month history of payment by the Borrower on an account for which the Borrower is an authorized user.
Additional information is available in Handbook 4000.1 II.A.5.d.iii and II.A.5.a.ii(B) at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh