The LO Down - Alternative Credit

Posted by Emma Bowder on November 16 2022

Mortgage applications follow a pretty set process. Lenders check whether income and assets meet certain criteria, but the actual loan approval is based heavily on what’s in the credit report.  As long as there is ample data in that credit report, the process is fairly straightforward.  But for some key groups of potential homeowners, specifically those with little to no credit history, obtaining a mortgage is not so simple.  All of that is finally starting to change.


The Federal Housing Finance Agency (FHFA) just announced that they will move from the typical FICO credit scoring model that has been used by Fannie and Freddie for the past few decades, to the new FICO 10T and VantageScore 4.0. Both of these new scoring models look at what is called “trended data”.  This is basically a way to look at a borrower’s credit and spending trends, instead of simply a snapshot of a specific date in time.

Freddie Mac also just announced that it will start reviewing financial account data as a way to assess borrower credit risk.  Basically, with the borrower’s permission, the system will evaluate 12 or more months of cash-flow activity into the borrower’s checking, savings, and investment accounts, to see if they are consistently receiving deposits and then using those funds to pay things like rent, utilities, etc. One thing to note is that Freddie claims this information can only positively affect borrowers.  So if some applicants have recently experienced hardships and their bank accounts aren’t looking so great at the moment, that won’t affect the loan decision.

Also, back in November of 2021, Freddie launched an initiative to encourage rental property owners to report on-time rental payments to the 3 major credit bureaus.  Basically eliminating the need for borrowers to provide the necessary documentation to prove rental payment history. Though the program has a relatively small number of enrollments currently, according to a representative of Freddie Mac, “this has already helped some renters see an increase in their credit scores”. (C, Wandler, 2022)

This comes in conjunction with Equifax’s recent announcement that it will start including things like on-time Utility and Cell Phone payments in its credit score model as well. Though Equifax hasn’t yet discussed what data will be checked, how it will be collected, or when borrowers might start seeing any changes on their credit reports. 

All of these initiatives are geared toward helping borrowers with what is referred to as a “thin credit file” to navigate the home buying process a bit more easily. Processes that used to require significant time and energy for both LOs and borrowers, may soon be automated. Only time will tell if or when borrowers may benefit from these changes, but we will continue to provide updates with any major developments as they happen. 

That’s all for us.  Thanks for reading, and for more content like this, check out

Tags: Mortgage, REALTORS



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