New technology and policy changes at Fannie Mae and Freddie Mac spur innovations by Guild Mortgage and Ready Life to help borrowers without credit scores and good payment histories.

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More renters could find themselves on the path to homeownership thanks to some recent lender innovations and policy changes at mortgage giants Fannie Mae and Freddie Mac.

Guild Mortgage announced Monday that it’s partnering with FormFree to utilize the fintech’s new Residual Income Knowledge Index (RIKI) to help borrowers without credit scores qualify for better rates on FHA, USDA and VA mortgages based on their rental payment histories, residual incomes and other data points.

Fintech lender Figure Technologies announced Tuesday that it will provide both financial backing and blockchain technology for a new startup, Ready Life, which plans to offer mortgages to borrowers who don’t have a credit score, but have established a track record of paying their rent on time using the company’s Ready Pay Visa Debit Card.

Ashley Bell

“We are rewriting the rules for homeownership,” said Ready Life CEO Ashley Bell, in a statement. “We believe that a family with a documented history of paying their rent on time will pay their mortgage in the same fashion.”

Bell, a corporate finance attorney and former policy advisor to the Trump administration, joined Ready Life in April, according to his LinkedIn profile. Ready Life, which will use Figure’s Provenance Blockchain to power a suite of financial products that it plans to launch this fall, is currently conducting a Series A funding round led by Figure, the companies said.

The Consumer Financial Protection Bureau has estimated that about one in five adults are either “credit invisible,” or don’t have enough credit history on file to generate a credit score. The bureau’s research shows borrowers who are Black, Hispanic, or living in low-income neighborhoods are more likely to have trouble getting a mortgage or other loans because they have a thin credit file or no credit history at all.

But rental payment history is “highly likely to be predictive of mortgage loan performance,” according to a 2018 analysis by the Urban Institute funded by the National Fair Housing Alliance.

Last summer Fannie Mae announced changes to its automated underwriting system, Desktop Underwriter, that can help renters improve their chances of being approved for mortgages when they permit lenders to tap their electronic bank statement data to consider rental payment history.

Freddie Mac recently followed suit, launching similar capabilities for its automated underwriting system, Loan Product Advisor, which went live on July 10.

Michael DeVito

“Millions of American adults lack a credit score or have limited credit history,” Freddie Mac CEO Michael DeVito said in a statement. “By factoring in a borrower’s responsible rent payment history into our automated underwriting system, we can help make home possible for more qualified renters, particularly in underserved communities.”

Lender technology provider FormFree was ready to support Loan Product Advisor’s new capabilities at launch, helping lenders using the company’s AccountChek verification of asset (VOA reports) boost the number of loan approvals by taking into account on-time rent payments — including those made using mobile apps like Venmo, Zelle and Paypal, the company said.

Guild Mortgage says its new Complete Rate program is powered by RIKI, which allows borrowers to opt-in to an analysis of their bank transactions and balance data, which FormFree retrieves directly from financial institutions.

Borrowers establishing nontraditional credit with rent history, utilities or car insurance payments may qualify to purchase primary residences using FHA, VA or USDA loans with a down payment of zero to 3.5 percent.

Borrowers who don’t have credit scores typically pay higher interest rates — a full percentage point or more compared to borrowers with good credit scores, Guild said. If lenders see consistent rent payment history or good residual income history, then borrowers without credit scores may qualify to receive lower interest rates or lower fees than they would have without the analysis.

“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,” FormFree CEO Brent Chandler said in a statement.

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Email Matt Carter

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