Guild Mortgage has announced a new program, Complete Rate, which provides a more inclusive path to homeownership based on residual income analysis and rental payment history.
The Complete Rate program, powered by FormFree, offers an alternative method of measuring borrowers’ credit risk. Those without a credit score or credit history can enroll in the program for a free assessment. If the FormFree Borrower Report shows a consistent rent payment history and a good residual income history, borrowers may be eligible to receive a lower interest rate, lower fees, or both.
The program was created to help first-time home buyers 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 the borrower would pay. Borrowers without a credit score are usually charged higher fees, a higher interest rate, or both. A borrower with no credit score could pay an interest rate one percentage point or more higher than a comparable borrower with a good credit score.
According to the Consumer Financial Protection Bureau’s “Data Point: Credit Invisibles” report, 19% of adults in the United States do not have a traditional credit score. Of these, 8% have a “thin or outdated” score file, which makes it impossible to generate a valid and up-to-date credit score for them. A further 11% are considered “invisible credit” because they do not don’t have a credit report with any of the three major credit bureaus – Equifax, Experian and TransUnion.
“Lack of credit history is a major barrier faced by some first-time home buyers, especially minority buyers who are almost twice as likely to have no credit score,” said David Battany, Executive Vice President of Capital Markets at Guild Mortgage. “Guild’s Comprehensive Rate Program fills the blind spot in a mortgage lender’s credit score by bringing in additional data to provide a more complete picture of a borrower’s creditworthiness, which could lead to a lower interest, which can mean 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 blind or have unrated credit records. About 15% of blacks and Hispanics are invisible to credit, compared to 9% of whites and Asians. An additional 13% of blacks and 12% of Hispanics have unrated sex, compared to 7% of whites.
“Hispanic immigrants tend to use credit much less frequently than other populations, which makes it harder to get a mortgage, and unfortunately some very deserving people aren’t approved to buy a home or pay 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). to Hispanics, as other minorities and millennials are also disproportionately represented in the number of people considered invisible to credit.One of the biggest challenges for the mortgage industry in the coming years will be to finding new measures to predict financial capability and assess creditworthiness.”
FormFree, a fintech company, provides lease 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 without a credit score. FormFree’s proprietary analysis of banking transactions and balance data is collected directly from financial institutions, with explicit consumer 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 creditworthiness. borrower,” said FormFree CEO Brent Chandler. “FormFree is proud to provide the Residual Income Analysis – what we call a Residual Income Knowledge Index, or RIKI for short – behind Guild’s Complete Rate Program.”
Chandler added, “Guild has been a strong advocate for the mortgage industry’s need for alternative measures to assess risk, and we are proud to take this first step towards creating a more inclusive path to homeownership through to our strategic partnership.