Immigrant families seeking to finance home purchases -- and the Realtors who seek to help them - -just got an important new tool: A mortgage that requires no conventional credit history, no credit scores, and “understands” extended-family, multi-earner household income patterns typical of many immigrant groups.

The new loan -- dubbed “Settle America” -- was developed specifically to serve immigrants who have solid employment histories but who have made relatively little use of the American banking and credit systems, and therefore have minimal or no credit files.

Under virtually all electronic underwriting systems now used by major lenders, you cannot qualify for a mortgage without credit histories and scores that predict your risk of future default. That, in turn, has created sizable hurdles to homeownership for many immigrant and minority families whose income and savings patterns do not conform to traditional American norms.

They may have multiple members of an extended family residing together and pooling income -- some of it in cash. Traditional underwriting rules, however, require the principal purchaser or co-purchasers together to have enough income to handle the mortgage payments. Contributions from other household members are ignored.

Traditional rules also mandate credit histories on file at the big three credit repositories -- Equifax, Experian, and Trans Union.

Immigrant families frequently have multi-year histories of on-time payments for rents, utilities, telephone bills, health insurance and the like--but none of these payments are reported to the repositories and are not considered by electronic underwriting systems.

But now one of the country’s largest mortgage lenders, GMAC Mortgage Group, is changing the rules of the traditional game. Its new mortgage program looks to rent, utilities and other monthly bill payments and treats one year’s worth of on-time payments as adequate evidence of creditworthiness. The program also allows up to 30 percent of a borrower’s loan qualification income to be contributed by other resident members of the household.

It requires only a $1,000 minimum downpayment -- a recognition, according to GMAC Mortgage’s executive vice president Rick Gillespie, that “it is often more difficult for immigrant families to save cash for a downpayment, due to a common practice of providing for relatives in the homeland.”

The new program has a maximum loan amount of $322,700 and is open to permanent resident aliens, legal residents with Social Security numbers, as well as any U.S. citizen who qualifies.

Asked for specific examples of how the new program works, GMAC provided these two actual loan commitments recently made to immigrant applicants and now heading for final closing. GMAC withheld the names of the borrowers to protect their privacy. Both applicants “would have been rejected for a loan” by GMAC using any of its traditional underwriting program because of their lack of credit histories and scores, according to a spokeswoman.

Homebuyer #1 is an immigrant from Ecuador who has held a job in the U.S. for two years, and is buying his first house in Minnesota. The home costs $180,000 and the loan amount granted to the applicant on the basis of on-time rental histories is $174,600. The rate is 5.5 percent fixed for 30 years, with a 3 percent downpayment.

The second applicant is also Hispanic, has lived in the U.S. for three years, and is purchasing a $159,900 house in Virginia. Based on on-time rent and utilities payment histories -- but no traditional scores or credit file data -- GMAC is lending he applicant a $151,905 mortgage at 5.87 percent plus one point, and a 5 percent downpayment.

GMAC is not the only major player in the industry to provide specialized financing for immigrants and others with non-traditional credit profiles. Investors Fannie Mae and Freddie Mac both are working on loan programs to help get immigrants with solid employment and payment histories into their first homes, despite the absence of credit files.

Published: August 11, 2003

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.