Are FICO scores overrated when assessing one’s creditworthiness? Probably not, but what about the 67 million people who don’t qualify for mortgage loans or even credit cards because of a lack of traditional credit?
While using alternative credit scoring is not a substitute for bad credit, it can be a vehicle to offer more affordable loans than sub-prime or Alt A programs offer.
Changes for the Better
Under FICO’s new system, “alternative data” from mega information suppliers LexisNexis and Equifax will be used to build an alternative scoring system designed to help a large group of people become creditworthy.
According to Jim Wehmann, a VP with FICO, “We set out to help unbanked, underbanked, and disadvantaged people gain equal access to the standard credit products enjoyed by millions of Americans.” This is also great news for lenders and should create millions of potential customers, who will now qualify for loans.
So What is Alternative Credit?
Joe Chaloux, a Fair Lending Examination Specialist with the FDIC, explains that examples of alternative credit include payments for such things as rent, utility bills, monthly insurance payments, child care, and rent-to-own agreements.
Fannie Mae has estimated there are approximately 5 million people with no credit score that could afford to purchase a home, but do not qualify based on the traditional scoring system. Lenders that take advantage of using new credit models, or alternative credit, with so much more information at their fingertips, will be able to make more loans of good quality to borrowers that deserve better rates.
Read our blog post: How Lenders can use Home Equity Loans to Improve Customer Relationships
Mortgage Portfolio Protection
No matter which system a lender uses to qualify buyers, is important to have reliable collateral protection insurance on your mortgage portfolio. Blanket Mortgage is an alternative to traditional force-placed hazard insurance for lenders that offers full collateral protection without the headaches of a tracking program. Click here to the latest news article about Blanket 360 Collateral Protection. You can learn more about Blanket 360 Insurance protection for Mortgage, Consumer, and Commercial collateral here.
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