Dateline: June 12, 2026 – San Francisco
In a move that could reshape government-backed lending, Guild Mortgage is urging Fannie Mae and Freddie Mac to scale residual income analysis across the GSE system. The California lender argues that widening the use of residual income data could unlock access to more borrowers without inflating risk, especially for those with thin credit histories.
The push comes as mortgage markets face a period of elevated rates and tighter credit standards. Lenders remain focused on aligning risk models with real household cash flows, not just traditional credit scores. Guild contends that a broader adoption of residual income underwriting could smooth the path for good borrowers who don’t fit the conventional credit-score mold.
What Guild Is Proposing
Guild Mortgage has been using a residual income framework since 2022 under its Complete Rate Program. The program has been deployed for government loans, allowing Guild to set risk-based pricing grids because it retains servicing and securitizes through Ginnie Mae pools. The lender asserts that the approach demonstrates what it would look like to scale residual income analysis in a wide framework under government guarantors.
Executive Vice President of Capital Markets David Battany says the proposal would turn a niche program into a standard industry practice. “If the GSEs were to scale residual income analysis, the entire market could benefit from a more nuanced view of borrower capacity,” he said. He added that the concept could shift focus away from a heavy reliance on traditional credit scores without compromising safety and soundness.
Rationale: Why Move Beyond Credit Scores
Guild argues that credit scores, while powerful, do not capture the full financial reality for many buyers—particularly younger borrowers, lower-income households, and minority communities. A study from the Federal Reserve Bank of Kansas City highlighted these gaps, noting that credit scoring tends to reflect access to financial mentorship and resources as much as past behavior. Battany cited the study to illustrate why residual income metrics, cash flow information, and ongoing rent data can provide a more complete picture of repayment ability.
“Credit scores are very powerful predictors, but we can’t over-rely on them,” Battany said. “One big gap is that a borrower with a thin credit footprint could be treated the same as someone with uneven but substantial payment history. That doesn’t reflect actual capacity.”
How the GSEs Have Begun to Move
Fannie Mae and Freddie Mac have begun incorporating rent and utility payment data, as well as certain cash flow indicators, into underwriting systems. The changes have been described by industry insiders as incremental—progress that could lay the groundwork for a broader residual income framework—but Battany views them as modest steps, not a full-scale retooling of risk models.
The GSEs also recently loosened a long-standing minimum FICO requirement, removing a floor on credit scores. Still, Guild says the industry should push further toward underwriter-driven assessments that consider actual household cash flows and ongoing obligations, not just binary credit-score thresholds.
Potential Rewards—and Challenges
- Expanded borrower access: A broader, income-centric underwriting standard could help qualified buyers who fall just below traditional score cutoffs.
- Stability for lenders: If adopted at scale, residual income analytics could offer a clearer lens on risk across the portfolio, reducing reliance on single data points.
- Pricing implications: Guild notes that moving to a scaled residual income framework would likely shift pricing on the bottom end of the risk grid, potentially increasing emphasis on project-level cash flow rather than credit history alone.
- Regulatory and data hurdles: Integrating income-based models across two large GSEs would require harmonized data standards, privacy safeguards, and robust testing to ensure fair lending commitments are met.
Battany warned that delivering residual income loans straight to the GSEs could land lenders at the lower end of pricing grids, which might affect returns. Yet he argued the trade-off could unlock higher-quality demand and reduce denial rates for borrowers who have solid cash flow but moderate or lower credit scores.
What This Means for Borrowers
For homebuyers, the push to scale residual income analysis could translate into more favorable underwriting outcomes for those who demonstrate sustainable income and low debt relative to earnings, even if their credit score isn’t pristine. Advocates say the approach aligns underwriting with a borrower’s actual repayment capacity, potentially lowering the number of false negatives—sound borrowers who are turned away because a score threshold doesn’t reflect their real finances.
However, industry watchers caution that any shift must balance access with sound risk management. The GSEs’ willingness to embrace broader data usage will matter, as will regulators’ scrutiny of new underwriting criteria and nontraditional data sources.
Quotes From Leaders and Analysts
“Guild’s experience with a residual income framework demonstrates a pathway for scale, not just a pilot,” Battany said. “We believe the industry should be asking: how can we more accurately measure repayment capacity across diverse borrower profiles? The phrase we’ve been using—guild pushes gses scale—isn’t just a slogan; it’s a blueprint for reform.”
Industry analysts note that scaling residual income analysis would require careful calibration against historical loss data and a clear governance framework for data sharing and privacy. Still, the potential to broadenhomeownership access is drawing interest from lenders wary of leaving thousands of creditworthy applicants on the outside because a score misses nuance in income volatility.
In conversations with lenders and housing advocates, several advisors pointed to the Kansas City Fed study as a critical reminder of the non-score realities many borrowers face. The report underscored that life events—education, caregiving, or job transitions—can temporarily depress credit scores without reflecting long-run stability. These findings bolster the case for a residual-income-based path to underwriting beyond a single numeric gatekeeper.
Market Conditions in 2026
As the housing market evolves, mortgage rates have fluctuated in a wider range than seen in the early pandemic era. Lenders are adapting to higher operating costs, more sophisticated data analytics, and heightened compliance expectations. The Guild proposal arrives amid a broader push by lenders to modernize underwriting while preserving the integrity of the mortgage market and protecting consumers from mispricing risk.
Analysts say that if Fannie Mae and Freddie Mac determine a path to scale residual income analysis, the effect could cascade through pricing, product design, and borrower eligibility rules across millions of government-backed loans.
Bottom Line
The call to scale residual income analysis is more than a niche initiative for Guild Mortgage. It’s a test of whether the GSEs can harmonize modern data-driven underwriting with traditional protections. If the industry embraces the concept, the result could be a more inclusive mortgage market that still safeguards investors' risk appetite. The coming months will be pivotal as policymakers and the GSEs debate how far to push residual-income underwriting before it becomes a standard practice across the mortgage landscape.
Key Data Points
- Guild’s Complete Rate Program has operated since 2022 for government loans, enabling the lender to set its own risk-based pricing due to servicing retention and Ginnie Mae pooling.
- The GSEs have started to incorporate rent and utilities data, plus cash-flow indicators, into underwriting—described by Guild as incremental steps toward broader residual income use.
- A recent Federal Reserve Bank of Kansas City study highlighted gaps in credit scoring for younger, low-income, and minority borrowers, reinforcing the case for non-score data in underwriting.
- Fannie Mae and Freddie Mac removed a minimum FICO threshold in a move toward more flexible underwriting practices, though industry observers say more work remains to scale residual income models.
Discussion