Alternative For Credit Invisible Borrowers Finds Success


A case study by FormFree highlights how one of the nation’s largest independent mortgage lenders is serving the credit invisible.

Leaders at FormFree estimate that millions of adults in the United States are credit invisible or credit unscorable. That makes it difficult for these potential homeowners to qualify for a mortgage.

Manual processes exist to underwrite mortgages for these borrowers but they are seldom used because people without a credit score often assume they cannot qualify for a home loan and industry professionals may be unaware of their options, according to the case study.

To provide loans for qualified credit invisible customers, San Diego-based Guild Mortgage Company introduced a Complete Rate program in July of 2022 that is powered by FormFree’s Residual Income Knowledge Index. Guild has over 300 retail branches and services loans in 49 states as well as the District of Columbia.

“There are 50 million Americans without credit scores. If even a small percentage of those – say, 5% or 10% – want to buy a house, that’s still millions of people who could benefit from homeownership but can’t qualify using traditional methods,” David Battany, Guild Mortgage’s EVP of capital markets, said for the case study.

Battany said credit scores are important, but he thinks the mortgage industry has become too reliant on them.

A pattern of timely payments on non-credit accounts can also show how responsible a borrower would be, he said.

“If someone has been renting a house for 10 years and paying $2,000 a month, they can probably pay that same amount as a mortgage,” Battany said. “That’s a no-brainer.”

Additionally, how much money is left over after the monthly bills are paid is valuable information to lenders but not reflected in credit reports. Complete Rate uses rent, utility payments, and average monthly residual income to determine the borrowing capacity of a potential borrower.

“A credit score is powerful and predictive, but its weakness is that the borrower has to have had many revolving or installment accounts over many years,” Battany said. “In my view, we’ve taken what used to be an obstacle to homeownership and turned it into an opportunity.”

Battany said they are confident FormFree’s Residual Income Knowledge Index can predict default risks accurately.

He said now it’s a matter of policy catching up to progress.

“Our industry has an opportunity to help people who have been sidelined from homeownership for decades, including minorities who are almost twice as likely not to have a credit score — but it will take all of us working together, from the GSEs and like-minded lenders to housing counselors and policymakers,” Battany said.

Guild has doubled down on an expansion mindset despite the market downturn, focusing on acquiring existing lenders and opening new branches. Last month, leaders there announced the acquisition of Illinois-based First Centennial Mortgage.

In the last year, the company has acquired Wisconsin-based Inlanta Mortgage, a move that boosted Guild to a fifth of the market share in the state; Legacy Mortgage, an independent lender based in New Mexico; and Cherry Creek Mortgage, a Colorado lender with physical branches in 45 states, among others.

Guild also added eight branches in California this past April with a total team of 40 mortgage professionals, including twenty high-performing loan officers.

The company has more than 4,000 employees.

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