Guild Mortgage (NYSE: GHLD), a growth-oriented mortgage company that has originated and serviced residential loans since 1960, introduced Complete Rate, a new program that provides a more inclusive path to homeownership based on 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. 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.
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.
“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, EVP of capital markets, 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 United States, 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,” said Gary Acosta, co-founder and CEO, 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.
“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,” said FormFree CEO Brent Chandler. “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. 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.”
Guild’s Complete Rate program was created to help first-time homebuyers with no credit score and is available for FHA, USDA and VA home loans. For more information on Guild’s Complete Rate program, eligibility requirements, terms and conditions, visit, http://www.guildmortgage.com/get-started/products-services/complete-rate.
Headquartered in San Diego, Guild Mortgage is a leading national lender with an established history of offering a comprehensive array of loan products and partnering with government organizations to help deliver the promise of home in every neighborhood and community. Its loan professionals can serve the needs of any homebuyer, from helping first-time buyers achieve homeownership, often through government loan programs, to homebuyers looking for a jumbo loan. Guild also helps active duty and retired military personnel who qualify for VA loans with 100% financing and flexible qualifying standards. The company is consistently recognized for its impact in the communities it serves, commitment to customer service, strength in regulatory compliance, and workplace culture.