Corey Stone believes there are about 50 million people in the United States who have never really been issued credit. Most of them don’t have bank accounts, and close to a quarter are probably undocumented immigrants, but a lot of them pay their rent on time, which tells Stone that they might be eligible for mortgages, if only they had a way of showing it.
That’s where Stone’s new credit bureau, PRBC, comes in. Formerly named Pay Rent, Build Credit, the Annapolis-based company wants to give the millions of Americans without substantial credit histories a way of obtaining mortgages. It opened an office in Hamden in October to accommodate Stone, who came on as CEO after serving as an executive for American Payment Systems, which processes walk-in bill payments for utility companies across the country.
Backed by investments largely from banks and socially minded foundations, PRBC is creating a repository of credit records, currently in the “hundreds of thousands,” that lenders can rely on to give mortgages to those who lack credit.
The start-up credit bureau is focused almost completely on the mortgage industry because of the established protocol mortgage lenders rely on to qualify borrowers. Stone believes the system discriminates against poor city dwellers who are more likely to be renters and less likely to be offered credit cards.
“The people we’re trying to help are responsible and need a way to show it,” Stone said. To this point, fewer than 100 mortgages per month are issued nationally using credit reports generated by the start-up, but to Stone “it’s meaningful volume. People are getting into mortgages today.”
Revenue comes from two roughly equal pots. Consumers can log their own information and have their rent history verified for a report for $20; other lines of trade are $15 apiece. Lenders and brokers can order reports for $20 apiece.
But the business, which has been the focus of coverage by American Banker Magazine and the Washington Post since its 2002 founding, faces the same problem any new credit bureau would: the difficulty of adding potential borrowers to its database while simultaneously appearing on the radar screen for lenders and brokers, particularly those focused on sub-prime lending.
Nothing is new about the idea to Peter Spalthoff, executive director of the Connecticut Society of Mortgage Brokers. Brokers, he said, regularly check with landlords, car insurance companies and utilities to grant mortgages to borrowers who lack credit histories. He said brokers have a standard form to query landlords on renters’ payment history.
Old Idea
“Mortgage brokers have been doing that for years,” Spalthoff said — and for no money up front. He wasn’t sure the PRBC model of offering those checks as a service would gain a foothold.
“Will they be successful? I don’t know. Is there a call for that sort of thing? Yes, but that’s what we do,” Spalthoff said.
Stone said the company eventually hopes to automate the process to the point where lenders and brokers would prefer to use the service than do the research themselves. In the short term, he said, consumers will prefer PRBC because their records are permanent and can be used to shop for rates. Stone also believes there are lenders who would prefer to rely on an independent third party for credit information.
Another potential concern is the number of subprime lenders that went a little too far out on the limb in making risky loans. The collapse of Mortgage Lenders Network, just north of PRBC, in Middletown, is a local example of the overzealousness.
It is unknown what the long-term impact of some subprime lender meltdowns will be and how banks will respond to people requesting mortgages who lack traditional credit ratings.
It isn’t of great concern to Spalthoff. If PRBC doesn’t expand, he said, it won’t be because lenders aren’t interested in subprime mortgages anymore. Though he said the “the pendulum is going completely the other way now” in terms of growth for subprime lending, there are always hardworking, reliable borrowers out there who may not have credit histories.
PRBC has contracted with 14 other credit reporting agencies as re-sellers, who altogether reach more than 100,000 brokers. And it is offering lenders a new deal for 2007: Use PRBC to write 1,000 mortgages and get access to the data for (though not the names of) 10,000 listings in PRBC’s database. That spreads the company’s name and gets lenders thinking about serving the unbanked.