The National Association of REALTORS® hosted government, industry and academic leaders at a symposium this month to discuss mortgage credit issues. Throughout the conversation, one question kept coming up: How do we make credit available to responsible borrowers who don’t have a credit history?
More than 40 million people in America have what is known as a “thin file,” meaning their credit history is either short of non-existent. But a borrower’s credit score is a critical factor when trying to enter the housing market. Without a credit history for lenders to consider, a borrower stands little to no chance of obtaining a loan.
The reality is that people come from different backgrounds and sometimes practice different financial activities. Minorities, immigrants and people with modest incomes are particularly likely to come from backgrounds that avoid debt. The result, too often, is a thin or non-existent credit history.
Fortunately, new credit scoring models that incorporate additional predictive metrics and payment history are under consideration before Congress, offering a potential solution. For example, some have proposed allowing providers like gas, electric, and telecommunication companies to report consumers’ payment histories to credit reporting agencies, offering a credit history to many who need one.
Review NAR’s data concerning the struggle to get first-time buyers into the market. Talk to REALTORS® in your community to find out what they’re hearing from their buyers who struggled to get mortgage credit. Speak with new homeowners about any mortgage credit issues they experienced.