References Required for a Loan Underwritten Through DU

For the vast majority of loans underwritten through Desktop Underwriter (DU), the primary reference required is a three-in-file merged credit report. Lenders must request credit scores for each borrower from the three major credit repositories—Equifax, Experian, and TransUnion. This report provides the data DU needs to assess the borrower’s credit history and risk profile. The version of the credit report received by DU must support trended credit data, which provides expanded information on a borrower’s credit history, such as payment amounts and balances over time, rather than just the current status of accounts.

If a loan casefile involves borrowers who do not have traditional credit scores, DU has specific requirements for establishing a nontraditional credit history. Generally, for loans underwritten through DU where no borrower has a credit score, the lender must document at least two nontraditional credit references for each borrower. This is a lower threshold than manual underwriting, which typically requires four references. These references allow DU to assess the borrower’s willingness to repay debt in the absence of a traditional FICO score, ensuring the borrower has a demonstrated history of financial responsibility.

Yes, there is a specific exception within DU that allows lenders to waive the manual documentation of nontraditional credit references. If the lender obtains a 12-month third-party asset verification report and DU successfully conducts a cash flow assessment that validates the borrower’s cash flow management history, the lender is not required to manually document the standard two nontraditional credit references. This automated assessment analyzes the borrower’s bank account activity to determine creditworthiness, streamlining the process for borrowers with thin credit files who might otherwise struggle to gather manual payment history letters.

In a scenario where a loan application includes multiple borrowers, and at least one has a traditional credit score while another does not, DU applies a specific test based on income contribution. If the borrower who possesses a credit score contributes more than 50% of the qualifying income for the mortgage, the lender is not required to document any nontraditional credit references for the borrower who lacks a score. However, if the borrower with the credit score contributes 50% or less of the qualifying income, the lender must document at least two nontraditional references for the borrower without a score.

Yes, for loans underwritten through DU where a nontraditional credit history is required, a housing payment history is mandatory. One of the required nontraditional credit references must be a record of housing payments, such as rent paid to a landlord or a privately held mortgage, covering the most recent 12-month period. This requirement is stricter than some manual underwriting flexibilities because housing payments are considered the most predictive indicator of future mortgage performance. If a borrower cannot document a housing payment history (for example, they live rent-free), they may face stricter reserve requirements or ineligibility.

Yes, DU has functionality that allows rent payment history to positively impact the credit risk assessment, even for some borrowers with traditional credit. If the lender submits the monthly rent amount and provides a 12-month third-party asset verification report, DU can identify rent payments within the bank data. If DU identifies a consistent history of rent payments (typically 12 months), it uses this information to supplement the credit assessment. This can be particularly beneficial for first-time homebuyers who may have limited credit depth but a strong track record of paying rent on time.

DU considers authorized user tradelines—accounts where the borrower is not the primary holder but has access to the credit—in its risk assessment. However, the lender has a responsibility to review these accounts to ensure they accurately reflect the borrower’s credit history. DU will issue a message identifying these accounts. The lender should confirm the borrower’s relationship to the account owner and whether the borrower actually makes payments. If the lender determines the authorized user account is not an accurate reflection of the borrower’s credit, they may need to evaluate the credit history without the benefit of those tradelines.

No, DU is not designed to process or evaluate foreign credit reports. To obtain a credit report that is compatible with DU loan casefile requirements, the borrower’s present address must be within the United States or U.S. territories (with exceptions for military APO/FPO addresses). If a borrower relies on credit references from a foreign country to establish their credit history, the loan cannot be underwritten through DU. In such cases, the lender must manually underwrite the loan according to standard manual underwriting guidelines for foreign credit.

When nontraditional credit references are required in DU, they must reflect a history of periodic payments made at least quarterly. Beyond the mandatory housing payment, acceptable references include utility bills (electricity, gas, water), telephone and internet service, and medical or auto insurance payments (excluding payroll deductions). Other acceptable items include payments for school tuition, childcare, or even regular contributions to savings accounts or stock purchase plans if they show an increasing balance over 12 months. All references must document the most recent consecutive 12-month payment history.

If a borrower’s credit information is frozen at one of the credit repositories, DU can still process the loan provided that credit data is available from at least one repository (if the lender requested a three-in-file report). However, if the borrower’s credit information is frozen at two or more of the credit repositories, the loan is generally not eligible for DU underwriting. In such cases, the borrower must unfreeze their credit to allow the lender to obtain a sufficient credit report for DU to perform a valid risk assessment.