Guild Mortgage rolled out a new program, aimed at first-time home buyers, that will accept rental payment records and residual income history in place of credit scores.
If the fintech company borrowers report FormFree, which provides rental payment history and residual income analysis, shows consistent payment records, borrowers may be eligible to receive a lower interest rate and fee, according to a statement from Guild Mortgage. The program is available for several types of home loans, including Federal Housing Administration (FHA), united states department of agriculture (USDA) and Department of Veterans Affairs (VIRGINIA).
“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.
Typically, borrowers who don’t have a credit score have to pay higher fees and interest rates. Bringing in additional data to fill the blind spot in a mortgage lender’s credit score could potentially lead to a lower interest rate, which for some users may determine whether they are eligible for a home loan, Battany added.
FormFree’s proprietary analysis of banking transactions is sourced directly from financial institutions with explicit consumer consent, according to Guild Mortgage.
About 19% of adults in the United States do not have a traditional score, according to the Consumer Financial Protection BureauCFPB Data Point: Credit Invisibles report. Of those without a credit score, 8% have a “thin or outdated” score file, making it impossible to generate a current, valid credit score for these borrowers. An additional 11% are considered “invisible credit” because they do not have a credit report with one of the three major credit bureaus – Equifax, Experian and TransUnion.
A deeper asset history opens up new lending opportunities
Until recently, lenders took a “less is more” approach to collecting asset documentation, and that’s understandable. It’s time for lenders to rethink the asset history they need to request during the VOA stage.
Presented by: FormFree
About 15% of black and Hispanic applicants are invisible to credit, compared to 9% of white and Asian applicants, the CFPB said. An additional 13% of blacks and 12% of Hispanics have unrated sex, compared to 7% of whites.
“This problem is not unique to Hispanics, as other minorities and millennials are also disproportionately represented in the number of people considered invisible to credit,” said Gary Acosta, co-founder and CEO of the National Association of Hispanic Real Estate Professionals (NAHREP). .
“One of the biggest challenges for the mortgage industry in the coming years will be finding new metrics to predict affordability and assess creditworthiness,” Acosta said.
Guild, a purchase-focused lender with a distributed retail model, reported net income of $208 million in the first quarter, propelled by the service portfolio as origination volumes and margins squeezed .
The lender reported origination volume of $6 billion in the first quarter, down 31% quarter over quarter and 38% from the same period in 2021. Purchase loans accounted for 66 % of total mount volume.
Guild Mortgage’s gain-on-sale margin on adjusted drawdown locked volume decreased from 3.94% in the fourth quarter of 2021 to 3.34% in the first quarter of 2022.