Guild Mortgage has announced a new program, Complete Rate, that provides a more inclusive path to homeownership based on residual income analysis and rent payment history.
The Complete Rate program, powered by FormFree, offers an alternative method to measure credit risk for borrowers. Those with no credit score or credit history can opt-in to the program for a free assessment. If the borrowers’ FormFree report shows consistent rent payment history and good residual income history, the borrowers may qualify to receive a lower interest rate, lower fees, or both.
The program was created to help first-time homebuyers with no credit score and is available for FHA, USDA, and VA home loans.
Most mortgage lenders pull a borrowers’ credit score to determine the interest rate or fees tjhe borrower would pay. Borrowers without a credit score are typically charged higher fees, a higher interest rate, or both. A borrower with no credit score could pay an interest rate a full percentage point or more over that of a comparable borrower who has a good credit score.
According to the Consumer Financial Protection Bureau’s "Data Point: Credit Invisibles” report, 19% of adults in the U.S. do not have a traditional credit score. Of those, 8% have a “thin or stale” score file, making it impossible to generate a current, valid credit score for them. An additional 11% are considered "credit invisible" because they don’t have a credit file with any of the three major credit bureaus — Equifax, Experian, and TransUnion.
“A lack of credit history is a major obstacle faced by some first-time homebuyers, particularly minority homebuyers who are almost twice as likely not to have a credit score,” said David Battany, Guild Mortgage's executive vice president of capital markets. “Guild’s Complete Rate program fills a mortgage lender’s credit score blind spot by bringing in additional data to provide a more complete picture of a borrower’s creditworthiness, potentially resulting in a lower interest rate, which can be the difference between qualifying for a home loan or not for some buyers.”
The CFPB reports that Blacks or Hispanics are more likely than whites or Asians to be credit invisible or to have unscored credit records. About 15% of Black and Hispanic people are credit invisible compared to 9% of whites and Asians. An additional 13% of Blacks and 12% of Hispanics have unscored reports, compared to 7% of whites.
“Hispanic immigrants tend to use credit much less frequently than other populations, which makes it tougher to qualify for mortgages and, unfortunately, some very deserving people are either not getting approved to buy a home or are paying more for their home loan due to their lack of credit history,” said Gary Acosta, co-founder and CEO of The National Association of Hispanic Real Estate Professionals (NAHREP). “This issue is not unique to Hispanics, as other minorities and younger millennials also are disproportionately represented in the number of people considered credit invisible. One of the biggest challenges for the mortgage industry in the coming years will be finding new metrics to predict financial capacity and evaluate credit worthiness.”
FormFree, a financial technology company, provides the rental payment history, residual income analysis, and other data points used by Guild’s Complete Rate program as an alternative method of measuring default risk for borrowers with no credit score. FormFree’s proprietary analysis of bank transaction and balance data is retrieved directly from financial institutions, with consumers’ explicit consent.
“To responsibly extend credit to more borrowers with non-traditional credit, lenders need a new way to measure their ability to repay that they can use alongside other information about a borrower’s creditworthiness,” FormFree CEO Brent Chandler said. “FormFree is proud to furnish the residual income analytics — what we call a Residual Income Knowledge Index, or RIKI for short — behind Guild’s Complete Rate program."
Chandler added, "Guild has been a vocal champion of the mortgage industry’s need for alternative measures to assess risk, and we are proud to be taking this first step toward creating a more inclusive path to homeownership through our strategic partnership.”
