FormFree offers lenders a system to assess the creditworthiness of borrowers

FormFree has released the Residual Income Knowledge Index (RIKI), a consumer ability to pay (ATP) measurement method for mortgages and other loans based on monthly income and expenses. When combined with traditional credit scoring models, RIKI provides lenders with a more complete understanding of consumer creditworthiness and creates homeownership opportunities for those with little or no credit history.

RIKI’s knowledge engineering rules are informed by human financial experts and are designed to help lenders mitigate risk through a more nuanced understanding of borrowers’ spending habits and ability to save. With the borrower’s consent, FormFree calculates residual income and RIKI by analyzing bank and credit card transaction records obtained directly from source financial institutions. The technology allows lenders to better understand a borrower’s discretionary funds after mandatory monthly expenses (eg, rent, utilities, loan repayments).

In July, San Diego-based Guild Mortgage became the first lender to pilot RIKI with its launch of Complete Rate, a program that provides a more inclusive path to homeownership by allowing consumers with no credit score or credit history to opt for RIKI’s assessment of their financial data for the chance to qualify for a lower interest rate, lower fees or both.

“Our comprehensive rate program, powered by FormFree’s RIKI, helps remove a major barrier faced by many first-time homebuyers and has enabled Guild to better serve consumers in a challenging interest rate environment. commented David Battany, executive vice president of capital markets at Guild Mortgage. . “By supplementing consumers’ credit scores with analysis of their actual transaction data, our revolutionary approach democratizes the credit decision-making process for those who need it most – historically underserved racial and ethnic groups, consumers with thin credit records and people without traditional full-time jobs.”

RIKI is now available to banks, credit unions, and independent mortgage banks (IMBs) across the United States. The rule-based algorithms behind the now-public feature were painstakingly designed without black-box machine learning and tested to ensure that RIKI cannot develop unintended biases. FormFree’s cash flow analysis also automatically identifies and ignores outliers in a consumer’s income and spending history to ensure that windfall earnings, money transfers or large purchases do not affect ATP estimates.

“Traditional credit scoring systems are designed to reward a very specific type of borrower: one with a W-2, a strong credit history, and a good debt-to-equity ratio. ‘countless mortgage-ready Americans to afford affordable homeownership,” says Brent Chandler, Founder and CEO of FormFree. “RIKI rewards something more fundamental and uncontroversial than credit history: simply making ends meet Considered with a credit score, knowing consumers’ ability to pay and save adds an extra layer of certainty when determining borrower risk.”

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