Beyond FICO: Predicting The Ability To Pay A Mortgage


Building credit is important for people who want to move into homeownership but some industry leaders are working to show lenders that there are alternatives to the traditional FICO score.

A recent survey conducted on behalf of the technology company FormFree shows that of the respondents, 40% said that insufficient credit scores are one of the biggest barriers to homeownership. FICO scores are used by a majority of top lenders for their credit risk assessment needs.

While 49% of respondents said their credit score should be considered during the home loan process, 53% would prefer that their ability to pay bills on time be factored in.

FormFree released its alternative to the traditional credit score model in October of last year. According to a press release from the time, the company’s Residual Income Knowledge Index, or RIKI, uses bank and credit card statements procured directly from financial institutions to give lenders an understanding of a borrower’s discretionary funds after mandatory monthly expenses.

This can be helpful for the millions of Americans with low or no credit scores.

FormFree’s Chief Customer Officer Christy Moss recently sat down with The Mortgage Note to talk about RIKI, which is available to banks, credit unions, and independent mortgage banks across the United States.

Moss was named a 2022 Tech All-Star by the Mortgage Bankers Association. She was recognized for her commitment to driving digital transformation in mortgage lending.

Moss said that for years, lenders have relied on FICO scores, but there is much more information out there that can predict a person’s ability to pay their mortgage. Paying rent on time can be a key indicator of reliability.

The survey shows that fewer than one in four renters get credit for their monthly payments.

“There are some corporate landlords that do report rent to the credit bureaus, which is great. It’s the fastest way to show and document that you’ve got the willingness and have paid consistent rent payments throughout your rental history and when mortgage lenders are looking to evaluate consumers to see if they are mortgage-ready they want to see you have made consistent rent payments, and they also want to see what the jump is between your rent payment and your mortgage payment,” Moss said.

The problem is that most small landlords do not report rental payments to the credit bureaus.

“I believe that some of the credit agencies have something where the consumer can submit their rent payments, but then it has to be verified, and I know there is a significant push by some of the agencies to push landlords to report their payments to the bureaus. However, the challenge with that is it takes time and there’s no incentive for the landlord to report,” Moss said.

Moss said that lenders are charged with looking at a consumer’s residual income, meaning what is left over after they pay their bills every month.

RIKI can do that, which is helpful for not only renters who do not have payments submitted to credit bureaus but also gig workers and people who run their own businesses.

“What RIKI does is it looks at all the transactions, income and expenses, calculates income, identifies if it is consistent monthly income or if it is a one-off transfer, and then the lender can see that,” Moss said.

Moss said she hopes that by collecting data in this way, lenders can help to close the wealth gap in America.

“One of the fastest ways to increase generational wealth is to become a homeowner and with our population in the United States we have several minority groups that have truly been left behind. Black and Brown Americans have not had the opportunity to purchase homes because either they’re a cash-driven culture or their credit scores are not there,” Moss said.

Last summer, San Diego-based Guild Mortgage became the first lender to pilot RIKI.

David Battany, Guild Mortgage’s EVP of capital markets, said at the time that the Complete Rate program powered by FormFree allowed them to better serve consumers.

“By supplementing consumers’ credit scores with analysis of their real transaction data, our groundbreaking approach democratizes the credit decisioning process for those who need it most — historically underserved racial and ethnic groups, consumers with thin credit files, and people without traditional full-time jobs,” Battany said in a statement.

GreenLyne, an inclusive finance-as-a-service platform for housing, has also adopted RIKI, according to a press release.

“GreenLyne’s fair lending credit underwriting innovation provides a precise path to safely and soundly expand homeownership for a large, unfairly underserved segment of Americans,” GreenLyne CEO Syeed Mansur said in a statement. “We are delighted to forge a deep partnership with FormFree, which couples a new era of consumer financial data with breakthrough advances in high accuracy credit risk prediction and fair underwriting that optimally balance affordability for borrowers and profitability for lenders.”

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