A new way to look at borrower risk
A group of banks and nonprofits launches a new program today that will make credit available to riskier borrowers without as much risk to the lenders. Sam Eaton explains how it works.
An empty bank vault (melodrama.ca via Flickr)
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Scott Jagow: One good thing that's come out of the mortgage collapse is that people are thinking of better ways to make loans. Today, a group of banks and nonprofits launches a new program that will make credit available to riskier borrowers, without as much risk to the lenders.
Sounds a little too good to be true, but at least these aren't subprime loans. Sam Eaton explains how it works.
Sam Eaton: The program will offer standard 30-year mortgages to borrowers without a traditional credit history. Instead of relying on credit scores to determine risk, participating banks will examine other forms of payment history, like rent and child care payments.
Mary Lee Widener heads the Neighborhood Housing and Services of America, one of the program's sponsors. She says by keeping more borrowers out of risky subprime loans, the participating banks only stand to gain.
Mary Lee Widener: You might charge less for the loan, but you'll end up making more on the loan because the loan will perform.
Widener says the cooperating lenders also agree to foreclose properties only as a last resort. And anyone qualifying for the loan would be required to go through credit counseling.
The $200 million project will launch in Washington, D.C., with the aim of going national.
I'm Sam Eaton for Marketplace.
