19 January 2023 | FinTech
Fintech Rewrites the Rules to Homeownership
By
Dr. Bernice A. King, the daughter of Dr. Martin Luther King Jr. and Coretta Scott King, is continuing her father’s legacy in action as a fintech founder.
Fintech’s mission is to innovate the financial system and make it accessible to all, and Bernice co-founded a fintech company inspired by her father’s famous words:
“Economic injustice is the inseparable twin to racial injustice.”
Discrimination between the housing and banking sectors is an issue that Bernice has long been serious about influencing.
So, she teamed up with former White House Policy Advisor for Entrepreneurship & Innovation and corporate finance attorney Ashley D. Bell to change the mortgage loan industry with an all-new fintech platform: Ready Life.
Ready Life, launched in July 2022, offers a way to homeownership that excludes credit scores from eligibility requirements. The platform aims to make financial services and home ownership accessible and equitable for all.
Talk about a fintech that is working to serve the people.
How It Works
The company’s essential product is Ready Life Mortgage, designed for customers who pay their rent on time using the Ready Pay digital account to apply for a mortgage – no credit score needed.
Ashley and Bernice hope to turn 100,000 renters into homeowners by helping customers show lenders that consumers have the cash flow even if they don’t have a credit score to secure a mortgage.
In November, Ready Life partnered with Figure’s blockchain technology to provide loan origination, equity management, private fund services, banking, and payments.
Fannie Mae also launched underwriting technology to provide technical support for transforming Ready Life customers’ rental payments into mortgage underwriting.
It’s called Desktop Underwriter and enables single-family lenders to identify on-time rent payments in the applicant’s bank statements, with permission from the mortgage applicant, and deliver a credit assessment.
Ready Life goes beyond housing services. It consists of a whole suite of products and tools to empower individuals to create and preserve generational wealth, including:
• Ready Pay – Visa Debit Card
• Ready Merchant – Merchant Payment Services
To lead its rollout of fintech products, Ready Life tapped Steve Payne as Chief Technology Officer. Payne has used fintech as a tool to create opportunities for underrepresented communities and has experience that includes leading technology development at SoFi.
Why It Matters
President Gerald Ford signed the Equal Credit Opportunity Act (ECOA) in 1974 to ensure that banks use credit history, not any part of a person’s identity, to decide whether to approve a loan.
It also granted women the right to obtain credit cards separate from their husbands for the first time.
So credit reporting agencies began calculating number scores in 1989, using a formula created in 1959, also known as a FICO score.
The idea was that reducing a person’s life experiences with money to a single number is the fairest way to establish if they’re credit-worthy.
Sounds fair and unbias!
Not quite.
People and communities of color have been disproportionately targeted for high-cost, predatory loans and other risky products that lead to higher delinquency and default rates than non-predatory loans.
Consequently, POC is more likely than their white counterparts to have damaged credit.
Its systemic inequity is so firmly entrenched into the system that FICO even tried defending itself by writing a blog saying the credit-scoring model is color blind. 🚩🚩🚩🚩🚩
Bernice views Ready Life’s mission as continuing her father’s to fight this type of poverty and inequity.
In her words, “I believe that Ready Life can help rectify decades of discrimination in the area of homeownership by helping to remove unnecessary barriers.”
Beyond the org’s mission, Bernice King has long spoken of the deep connection between racism, poverty, and our economic system.
In 2019, African Americans were denied mortgages at a rate of 16%, and Hispanics were denied at 11.6%, compared with just 7% for white Americans, according to data from the Consumer Financial Protection Bureau.
An Iowa State University study published the same year found that LGBTQ couples were 73% more likely to be denied a mortgage than heterosexual couples with similar financial profiles.
The most prominent example of exclusion might be redlining: the practice of keeping applicants of color, particularly Black people, from getting mortgages and building wealth through home equity (Officially outlawed by the 1968 Fair Housing Act, it continued informally, more recently in subprime lending that ultimately led to the meltdown of the global economy).
By challenging institutions like the credit system, Bernice is tangibly giving power back to Black & Brown communities and truly dismantling oppression.
Fintech’s Role
Fintech algorithms have not entirely removed discrimination, but two silver linings have emerged.
- Fintech companies are helping to decrease discrimination thanks to the rise in competition with regular lenders.
- Fintech algorithms discriminated 40% less on average than face-to-face lenders in loan pricing and did not discriminate at all in accepting and rejecting loans, according to a study by Berkeley’s Haas School of Business.
But credit underwriting software is far from perfect. For example, the study found that fintech lenders still charged Black and Hispanic borrowers higher interest rates than whites.
Using data gathered by a FICO score is just a mirror of inequalities from the past. But unfortunately, by using this data, we’re amplifying those inequalities today.
What if we reported an additional data point to the credit bureaus that changed the game for millions? Like the 63 million Americans who are either unbanked or underbanked?
Another fintech startup rewriting the status quo is Altro. This no-cost credit-building app uses nontraditional forms of payment history like Netflix and Hulu subscriptions to help users build credit without prompting additional toxic consumerism.
Jay-Z’s Marcy Ventures and many other investors helped fintech company Altro raise its $18M Series A.
Tapping into the subscription economy is a familiar idea. Credit Karma gave it a try and ended up pivoting, given there wasn’t an overall subscription economy back in 2007-2008.
How things have changed. Today, estimates show that 85% of U.S. households have a streaming subscription, but Altro co-founder and CEO Michael Broughton suspects that number to be even higher.
A Netflix, Hulu, or YouTube subscription is recurring so often – and on auto-pay – that not adding this to credit reporting seems wrong.
At Altro, all of the company’s underwriting is cash-flow based, meaning it looks to see if you have a subscription, and that’s it – then a user can start to build credit.
Most of Altro’s users are Millennials, and Michael is hyper-focused on growth enabled by community-led partnerships instead of traditional B2B with other financial institutions.
AKA: No stuffy, big corporate, “hey, partner with us so we can *say* we serve the underserved” nonsense.
Altro’s focus on community taps into a growing demographic of users who want their financial tools to give them a sense of belonging.
Up next: Altro is working on a banking solution after Michael consistently heard from users that they’ve never had access to online banking.
The ultimate goal: Do what Credit Karma did and be a place where building/accessing credit is easy and accessible.
And it’s not so surprising that Michael built Altro with this in mind. He’s a military kid, so from age 7-17, he grew up in Japan and Korea.
In those countries, everything was built on community. So, for example, Michael said if they went into a bank, people would put a stack of money on the counter with a note and leave.
That’s unheard of in the U.S.
So he went from a community-driven infrastructure to America’s “cutthroat” culture.
Michael is now on a mission to bring communitarianism into the startup fintech ecosystem.
Are you interested in hearing more? Check out this episode of Humans of Fintech, where Michael and I chat about major trends like education, community building, and rewriting the rules.