Guild Mortgage has launched a new loan program that evaluates borrower eligibility using residual income analysis and rent payment history.
Guild’s Complete Rate program, powered by FormFree, offers an alternative method to measure credit risk for borrowers, the company says in a release.
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, they may qualify to receive a lower interest rate, lower fees, or both.
Most mortgage lenders use a borrower’s credit score to determine the interest rate or fees a borrower would pay. Borrowers who do not have 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.
Guild says its Complete Rate program provides a more inclusive path to homeownership.
“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,” says David Battany, executive vice president of capital markets at Guild Mortgage. “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.”
In the U.S., 19% of adults do not have a traditional credit score, according to the Consumer Financial Protection Bureau’s “Data Point: Credit Invisibles” report. 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.
Further, the CFPB reports that people who are Black or Hispanic are more likely than people who are white or Asian to be credit invisible or to have unscored credit records. About 15% of Black and Hispanic people are credit invisible (compared to 9% of white and Asian people), and an additional 13% of Black and 12% of Hispanic people have unscored records (compared to 7% of white people).
“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,” says 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 disproportionally 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 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.
Photo: Maria Ziegler
