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FHA Automating Nontraditional Credit

FHA Automating Nontraditional CreditPilot program required under housing act

July 28, 2009

By staff

The U.S. Department of Housing and Urban Development is automating non-traditional credit reporting on loans insured by the Federal Housing Administration.

The development of an automated process for FHA borrowers with insufficient credit histories is required under the Housing and Economic Recovery Act of 2008. The law significantly reformed the National Housing Act — which governs FHA programs.

HUD outlined a manual process using unapproved third-party vendors for non-traditional credit in Mortgagee Letter 2008-11 from April 2008.

Under the housing act, HUD is required to launch a pilot program for the automated process. The pilot ends on July 30, 2013. The first report card on the success of the program is due to Congress by July 30, 2010.

HUD indicated in a Federal Register notice that the automated process might include payment histories for rental housing, utilities and insurance. A “practicable design” is sought that is consistent with fair lending standards, the housing act’s goals and program requirements.

The housing act allows the secretary of HUD to restrict the automated program to first-time buyers.

Annual volume under the program is limited to 5 percent of FHA loan volume during the prior year.

The housing agency is seeking public comment on the pilot program and how it might interact with fair lending compliance and with existing FHA nontraditional credit policies. The comment due date is Sept. 28.

Among issues HUD is considering are technology, universal application and mortgage fraud prevention. The agency is also determining qualification requirements and whether the program should be only limited to first-time homebuyers.

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