Whether it comes by non-traditional credit (NTC), Non QM, or lower credit scores, the doors are opening up. In the first part of the year we have seen a larger number of Investors offering programs that are often looking for other compensating factors to allow borrowers with very little or no credit history to be approved for a mortgage. Examples of FHA’s allowing down to a 500 FICO score or NTC are becoming more predominate in the industry. As Investors become more comfortable with the QM rules and what they can and can’t do, the pendulum has started to swing back to the loosening of credit requirements. Let’s face it, they see 45-50 million potential customers with limited to no credit history, but they know not all of them are high risk. Alternative ways to allow Investors to predict or determine the default rate opens the doors for these borrowers.
Is this a road map to repeat the history and mistakes the industry made in the mid 2000’s? As of now, no. The Investors that are opening up to alternative scoring and underwriting methods are certainly more focused on compensating factors such as lower DTI, LTV, and higher reserves. As long as Investors continue to keep a tight grip on the compensating factors and not let the underwriting requirements start to slide Investors know they can still protect themselves and the Industry. We just need to keep in mind that there are still those out there calling for the SISA and NINA days to come back. Thankfully, in most people’s opinion, you should have to forfeit your license for even mentioning such shady products.