B3-5.4-03, Documentation and Assessment of a Nontraditional Credit History (02/07/2024)

This topic contains information on the documentation and assessment of a nontraditional credit history, including:

• General Documentation Requirements
• Housing Payment History
• Standards for Individual Credit References Obtained Directly from a Creditor
• Standards for Documenting a Nontraditional Payment History Obtained From the Borrower
• Verification of Bank Accounts and Wire Remittance Statements
• Borrowers with Disabilities
• Non-U.S. Citizen and Foreign Borrowers
• Assessment of the Payment History for Nontraditional Credit References

General Documentation Requirements

The lender can document the borrower’s nontraditional credit history directly from the borrower or the creditor, or by obtaining a nontraditional mortgage credit report from a consumer reporting agency.

Housing Payment History

The borrower’s housing payment history must be documented for the most recent consecutive 12-month period. The following documentation is acceptable:

• Canceled checks can be provided. In lieu of canceled checks, the lender may use the borrower’s bank statements, copies of money orders, or other reasonable methods for documenting timely housing payments. The documentation must clearly indicate the payee and amount being paid, and reflect that payments were made on a consistent basis.
• Direct verification of the payment of rent from the landlord. Direct landlord verification is acceptable whether the landlord is an individual or a professional management company.

If at least one borrower on the loan can document a housing payment as a nontraditional credit reference, the loan has met the housing payment history requirement. The lender is not required to obtain documentation of a housing payment history for other nontraditional credit borrowers on the loan. However, the lender must still document the minimum number of nontraditional credit references required for each nontraditional credit borrower.

If two or more borrowers on a loan share the housing-related reference (for example, they are both named on the lease for the property in which they are living), that documentation counts as one nontraditional credit reference for each borrower, even if only one borrower has been making the payments.

Note: If the credit report contains a housing payment reference and it includes the required information, including payment history, then the lender may use that housing payment reference as an acceptable nontraditional credit reference.

Standards for Individual Credit References Obtained Directly from a Creditor

Individual credit references (other than housing payments) from a creditor must include the following:

• the creditor’s name,
• the name of the individual providing the reference,
• the date the account was opened,
• the amount of highest credit,
• the current status of the account,
• the required payment amount,
• the unpaid balance, and
• the payment history.

The historical status of each account must be stated in a “number of times past due” format using “0 X 30, 0 X 60, 0 X 90” days late.

Note: Vague statements such as “current,” “satisfactory,” or “pays as agreed” are not acceptable by themselves.

Standards for Documenting a Nontraditional Payment History Obtained From the Borrower

For documentation obtained directly from the borrower, the following standards must be met:

• documentation that describes the terms of the debt repayment or contract together with canceled checks or copies of bills marked “paid” that reflect the borrower’s payment history over the most recent consecutive 12 months.
• withdrawals or debits on the borrower’s bank statements that show the payee information clearly listed for the creditor and that payments were made on a consistent basis over the most recent consecutive 12 months.

Verification of Bank Accounts and Wire Remittance Statements

Account statements can be used to document a nontraditional credit history, provided they are from the borrower’s checking account, savings account, voluntary payments made to a payroll savings plan, or contributions to a stock purchase plan. The account statements must reflect an increasing balance as a result of periodic deposits over at least the most recent consecutive 12-month period, with contributions being made no less than quarterly. If the account statements demonstrate overdraft activity, that information suggests a weakness in the borrower’s ability to meet financial obligations. The lender must assess the significance of this information relative to the borrower’s overall credit risk.

Note: If the loan is underwritten by DU and a cash flow assessment is conducted using a third-party asset verification report, different requirements may apply (see B3-2-03, Risk Factors Evaluated by DUB3-2-03, Risk Factors Evaluated by DU ).

Wire remittance statements can be used to document a nontraditional credit history, provided they demonstrate a consistent amount of funds being remitted over the most recent consecutive 12-month period.

Borrowers with Disabilities

If a borrower with disabilities does not have a credit score and a nontraditional credit history is being developed, the lender may use documentation provided by a court-appointed guardian, a Social Security Administration representative payee, or a parent, provided that this party:

• manages the borrower’s financial transactions,
• maintains records on the borrower’s behalf, and
• uses credit accounts held jointly in the name of the person with disabilities to pay financial obligations.

The lender can use the documentation provided either to request a nontraditional mortgage credit report from a consumer reporting agency, or to establish a nontraditional credit history for the borrower, as described in this topic.

Non-U.S. Citizen and Foreign Borrowers

If a non-U.S. citizen or foreign borrower lacks sufficient credit references in the United States to satisfy Fannie Mae requirements, the lender must use credit references from foreign countries to achieve the required number of nontraditional credit references and establish a nontraditional credit profile.

Assessment of the Payment History for Nontraditional Credit References

For each nontraditional credit reference, the following requirements must be met:

• There cannot be any delinquency on housing payments within the past 12 months.
• Only one account, excluding housing payments, can have a 30-day delinquency in the past 12 months.
• No collections (other than medical collections) or judgments have been filed in the past 24 months.
• Judgments, liens, collections, and charge-offs of non-mortgage accounts must be satisfied in accordance with B3-6-07, Debts Paid Off At or Prior to ClosingB3-6-07, Debts Paid Off At or Prior to Closing (for manually underwritten loans), or B3-5.3-09, DU Credit Report AnalysisB3-5.3-09, DU Credit Report Analysis (for loans underwritten with DU).

Note: A borrower may lack sufficient credit to obtain a credit score. However, the lender must still consider any derogatory credit references that appear on the credit report.

The table below provides references to recently issued Announcements that are related to this topic.