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Despite reaching an agreement to begin originating loans designed to help borrowers with lower credit ratings obtain mortgages, one of the nation’s largest lenders still has not done so.

Capital One Financial, as part of its purchase of ING’s U.S. online banking service, ING Direct, said it would commit to originating home loans insured by the Federal Housing Administration but hasn’t yet done so, according to a report from American Banker. The agreement, which was reached five months ago with the Federal Reserve Board, would have had the bank accept applications made through the FHA by consumers with credit scores as low as 580.

In all, the deal would have seen Capital One invest $180 billion into low- and moderate-income communities over the next decade, though there was no assurance made that this included the extending of more credit to those would-be borrowers, the report said. For its part, Capital One says it is still developing the internal infrastructure necessary to begin making these loans to financially troubled consumers, and expects that it should be in a position to do so by the end of the first quarter.

However, this is a problem facing many of the nation’s largest mortgage lenders these days, the report said. The federal government is trying to expand consumers’ access to credit after lending conditions tightened significantly during the recession, but banks are still largely cautious about making sizable loans to riskier consumers. For example, the current FHA underwriting minimums stand at 580, but during the recession banks typically kept the minimum score at 640, excluding anywhere between 15 and 20 percent more potential borrowers.

Consumer advocacy groups believe that the banks’ ongoing reluctance to start signing off on FHA-backed loans is in some ways discriminatory, and the U.S. Department of Housing and Urban Development is currently conducting an investigation into whether Capital One engaged in unfair lending practices, the report said.

Major mortgage lenders have faced a considerable amount of criticism in recent months as a result of what was believed to be improper handling of foreclosure processes. Those led to the robosigning scandal, in which unauthorized bank employees were allowed to sign off on massive amounts of foreclosure documents without properly reviewing them. Recently, a number of top lenders reached a settlement with federal and state officials over those accusations.

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  • http://www.eCredable.com Steve Ely

    Part of the “internal infrastructure” Capital One is building, deals with gaining additional insight to the consumer’s financial health beyond just their credit score. Most financial institutions are searching for Alternative Data that can be used in the underwriting process, to minimize their risk of the unknown. Alternative Data includes payments such as rent, utilities, and insurance. These items aren’t normally reported to the national credit bureaus, so it’s a challenge for financial insitutions to find this information and easily integrate it into their tried and true underwriting processes.

    If you’re a consumer applying for a loan and your credit score is weak, you need to make sure these payments are in good shape. If the bank looks at this data and finds your non-bureau payment history isn’t stellar, you’re going to be in a tough situation. Alternative Data is becoming a mainstream part of how banks look at you. You really need to pay attention to this information.

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