Company: Enact Mortgage Insurance
Innovation Title: Expanded Nontraditional Credit program
Company Website: https://enactmi.com/
Executive Summary
While expanding its DEI efforts, Enact Mortgage Insurance sought out areas where it could commit capital with the goal of helping to bridge the minority homeownership gap. After much research, credit invisibility was found to be an issue where Enact could have a positive impact. Credit invisible individuals have limited credit history which makes it difficult to form a score, making it harder to get a home loan. Enact found that the issue of credit invisibility disproportionately affects minorities because many are unbanked or underbanked.
To help minority buyers, Enact decided to focus on mortgage insurance eligibility and pricing for nontraditional credit (NTC), which allows those with limited credit history to use other obligations such as rent payments, utility bills, etc. to evaluate a person’s credit.
Benefits and Positive Changes of the Initiative
To decide fair pricing and guidelines for NTC borrowers, Enact needed to understand how these buyers performed. Historically, the mortgage industry has aligned these borrowers with the lowest FICO tranche – 620 – by default. So, any mortgage insurance, loan-level price adjustments, etc. were linked to that low score and resulted in a higher cost. Based on our data, Enact found that NTC loans performed more like loans with a mid-600s score. As a result, Enact updated our pricing and guidelines to align to a 680 credit score, materially reducing their mortgage insurance premiums and opening up more opportunities for homeownership.
The expanded guidelines also now allow manufactured homes, which again expanded homeownership access by increasing affordability and housing options.
What Makes This Initiative Unique?
Enact was the first mortgage insurance company to begin pricing NTC borrowers at a 680 credit score and not a 620. Additionally, it is unique for the guidelines to allow manufactured homes as these products were historically limited to site-built single-family homes, which often come with a higher price tag and limit options for home buying families.
Indicators of Effectiveness
Since updating the pricing and guidelines, Enact has seen a higher proportion of loans with NTC borrowers. The fact that lenders and borrowers are taking advantage of this opportunity is a primary indicator that Enact’s work is effective.
Enact is also having more conversations with lenders and the broader industry who want to learn more about nontraditional credit and begin offering it to their communities. Simply bringing awareness to the issue of credit invisibility is another key indicator of success for Enact, as the goal of the product was to expand homeownership access and to help close the minority homeownership gap across the housing industry.
Growth and impact
For minority communities, this product is driving homeownership growth. Homeownership helps with wealth building and contributes to stronger communities. For lenders, using NTC helps create another pipeline of business to help them grow.
Impact
Credit invisibility disproportionately impacts minority households. Many of these communities are unbanked or underbanked for various reasons.
