Dive Brief:

• Freddie Mac has introduced an automated process that replaces mortgage lenders’ current manual underwriting procedures for borrowers without credit scores. Automated assessments will make the process more efficient and provide greater certainty that the government-backed lender will purchase the loan, HousingWire reported.

• The Loan Product Advisor will evaluate loans based on Freddie Mac’s credit requirements to determine risk for borrowers who lack credit scores but can supply payment references.

• The move aims to support responsible lending while improving access to credit for all borrowers, including those with low and moderate incomes, as well as first-time buyers. 

Dive Insight:

As the housing recovery continues, millennial first-time buyers are still struggling to enter the market for several economic reasons. A lack of credit adds to those barriers, so the move by Freddie Mac could expand homeownership opportunities while helping lenders more efficiently gauge the risk.

Potential buyers without credit scores can currently get home loans, but they’re only offered by a few lenders. To combat the high interest rates that may come with no-credit loans, buyers can make a larger down payment. However, that, too, can be a challenge for many millennials for whom high rents and student debt counter their ability to save the required sum.

Younger, first-time buyers face an additional challenge in rising interest rates, although current rates are still close to historical lows. 

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