Thanks for the props Ron.
Linda - it sounds like the loan officer needs to use non-traditional credit in order to help your son qualify, perhaps because there is either no traditional credit/credit scores or that there is just very minimal traditional credit, and the lender has a requirement for there to be a certain amount of traditional or non-traditional trade lines in order for approval, but for their program it can be waived if there is a 20% down payment.
The good thing is this is being caught and addressed right now, during the pre-approval process, rather than after an offer has been made.
I put a blog post up about using non-traditional credit at http://www.trulia.com/blog/shanethemortgageman/2011/06/no_scores_no_problem_just_use_non-traditional_credit in case you want to get a further understanding of the possible issue at hand.
How many traditional trade lines does your son have reporting on his credit report, and how many "months reported" are each of them? If it's at least 1 with 12 months, then your son shouldn't need any non-traditional credit with quite a few lenders, but if it's not at least 1 with 12 months then I can see why the big need for the non-traditional credit.
If your son is applying for a conforming loan program, the most extreme guidelines would be looking for 2 years of credit history with at least 3 trade lines reporting 12 months of reporting history - but most are just fine with 1 or 2 traditional trade lines with 12 months of reporting history.
As you can see, it can be a maze to navigate depending on the lenders requirements and what your son has on his credit reports.