Subprime 2.0: Mortgages Now Available For Borrowers Without Credit Scores

Waterstone Mortgage Corporation, a national lender, based in Wisconsin with licenses in 48 states, announced Tuesday that it's now lending to people with aboustely no credit history, reported HousingWire.

Waterstone calls it the "Non-Traditional Credit Program" will use other forms of financial history, such as cell phone bills, rent, utilities, and insurance premiums when underwriting a borrower.

The Consumer Financial Protection Bureau (CFPB) estimates that about 26 million Americans have no credit score. The CFPB also states that an additional 19 million Americans have a limited or outdated credit history. This means that 18% of adults are "credit invisible," said Waterstone in a statement.

"While a credit score is certainly very useful for determining a homebuyer's ability to pay their mortgage payment, other payment indicators–such as bills that are consistently paid in full and on time–can be extremely telling," said Waterstone Mortgage SVP–Investor Relations & Product Development Kim Newby.

The new program is available with conventional, FHA, USDA, or VA loan options, with the goal of helping those with no credit history into homes.

"Of course, the Non-Traditional Credit Program is ideal for borrowers who only use cash, debit or personal checks on a regular basis. But it's also designed for those who have had credit cards or loans in the past, but who haven't utilized credit in more than two years," Newby said.

"Also, recent immigrants who haven't yet established a credit score in the United States could benefit from this program, as well as young adults and recent college graduates who are just beginning to build their credit."

Waterstone has debuted the new loan program at a time when a collapse in mortgage rates is failing to bring buyers back.

And it seems like ten years after the collapse of Lehman Brothers, mortgage companies are once again taking bets on the same type of loans that nearly collapsed the economy amid a flurry of emergency bailouts and unprecedented consolidations.

Waterstone allowing someone with no credit history to purchase a home amid an economy that is cycling down and headed towards a possible recession is a recipe for disaster.