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GAO-10-876R 1 (2010-07-30)

handle is hein.gao/gaobaanty0001 and id is 1 raw text is: A GA 0 Accountability I Integrity Reliability United States Government Accountability Office Washington, DC 20548 July 30, 2010 The Honorable Christopher J. Dodd Chairman The Honorable Richard C. Shelby Ranking Member Committee on Banking, Housing, and Urban Affairs United States Senate The Honorable Barney Frank Chairman The Honorable Spencer Bachus Ranking Member Committee on Financial Services House of Representatives Subject: Mandate on Department of Housing and Urban Development's Alternative Credit Pilot Program When potential borrowers apply for a mortgage loan, lenders typically use borrowers' credit scores-which are based on their credit payment histories, debt, length of credit history, new credit accounts or requests, and types of credit used-to help determine their creditworthiness. However, some borrowers have limited or no credit histories, and lenders are unable to determine their creditworthiness using this traditional method. For these nontraditional borrowers, lenders may assess creditworthiness through alternative means, including the compilation of performance on rental payments; utility, phone, and cable television bills; and insurance or tuition payments. While some lenders have developed statistical scoring methods to determine borrowers' creditworthiness based on these data, others rely on the judgment of their staff to make determinations on a case-by-case basis, according to Department of Housing and Urban Development (HUD) officials. HUD permits lenders that originate mortgages insured by HUD's Federal Housing Administration (FHA) to establish a borrower's credit history through alternative means and has provided guidance to FHA lenders for evaluating these nontraditional credit histories. According to HUD officials, 7,319 nontraditional borrowers were approved for FHA-insured mortgages in fiscal year 2009. Page 1 GAO-10-876R HUD's Alternative Credit Pilot Program

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