5202.1: Establishing Borrower credit reputation for Manually Underwritten Mortgages (06/26/17)

To establish an acceptable credit reputation, there must be at least a minimum amount of credit history available. There may be situations in which a credit history of short duration is sufficient to demonstrate an acceptable reputation as long as the history contains a sufficient number of payment references. A credit history of short duration adds a layer of risk that must be considered in evaluating the Borrower's credit reputation.

At least one Borrower whose income or assets are used for qualification must have a minimum number of payment references comprised of:

At least three Tradelines, whether or not on the credit report, or
If a Borrower does not have three Tradelines, at least four Noncredit Payment References or a total of four Tradelines and Noncredit Payment References

A Tradeline for an account for which the Borrower is not the primary account holder, but is listed as an authorized user, may be considered a Borrower's Tradeline if the Seller obtains and retains in the Mortgage file documentation that evidences at least one of the following:

Another Borrower on the Mortgage owns the Tradeline in question
The Tradeline is owned by the Borrower's spouse, or
The Borrower has been making the payments on the account for the last 12 months

To be used to establish a minimum payment history, a Noncredit Payment Reference must have existed for at least 12 months. A Borrower with a credit reputation established using only Noncredit Payment References adds an additional layer of risk that must be considered by the Seller. In addition, when the credit reputation for all Borrowers is established using only Noncredit Payment References, then at least one Borrower must participate in a homeownership education program before the Note Date, or the Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages. Refer to Section 5103.6 for requirements related to homeownership education.

When the Borrower has a housing payment history, the Seller must verify both current and prior housing payment histories for no less than the most recent 12 months (or length of housing payment history if less than 12 months) in accordance with Section 5202.2(b).

Documented payments of a voluntary nature, such as deposits to a savings account, contributions to a payroll savings plan or contributions to a stock purchase plan of at least 12 months may be included as one of the Noncredit Payment References if the history shows periodic deposits (at least quarterly) resulting in a growing balance over the year.

As long as a permanent or nonpermanent resident alien Borrower has established the minimum number of payment references required above in the United States, a U.S. credit history may be supplemented with a credit history from a foreign country to establish an acceptable credit reputation. Documentation from a foreign country must meet the standards set forth in Sections 5102.3, 5102.4 5202.2(b) and 5203.1.