Article Courtesy of: Banker & Tradesman
By Diane McLaughlin | Banker & Tradesman Staff
Mortgage lenders using Fannie Mae’s systems will soon be able to consider rental payment history when deciding whether to approve a loan, a change that could help increase minority homeownership.
The Federal Housing Finance Agency said in a statement
on August 11th that Fannie Mae will update its systems to consider rental payment history in its risk assessment processes, giving borrowers an opportunity to benefit from having a positive history of making rental payments included in underwriting decisions. There is no additional burden for the borrower or the lender to use this feature, the FHFA said.
“For many households, rent is the single largest monthly expense. There is absolutely no reason timely payment of monthly housing expenses shouldn’t be included in underwriting calculations,” Acting Director Sandra L. Thompson, said in the statement. “With this update, Fannie Mae is taking another step toward understanding how rental payments can more broadly be included in a credit assessment, providing an additional opportunity for renters to achieve the dream of sustainable homeownership.”
In a separate blog post today, Fannie Mae CEO Hugh Frater said the change would be made to the Desktop Underwriter platform and represented “one important step in correcting housing inequities and encouraging the housing system to develop new ways to serve all of society safely and fairly.”
Fannie Mae’s National Housing Survey found that Black consumers identified insufficient credit score or credit history as the single biggest obstacle to getting a mortgage at a rate of 29 percent compared to 18 percent for white consumers. Frater said 20 percent of the U.S. population had little or no established credit history, with people of color disproportionately represented in that demographic.
“While credit history is a key element in evaluating a borrower’s ability to make a mortgage payment, building credit in the United States is not an equitable endeavor,” Frater said. “Most ways to establish credit involve student loans, credit cards, or parental co-signers. But, people of color are statistically less likely to use these forms of credit to manage their financial lives.”
Starting Sept. 18, borrowers can give lenders permission to use bank account data to identify 12 months of consistent rent payments. But rental payment history will not hurt borrowers, Frater said, because any missed or inconsistent rental payments would not negatively affect their ability to qualify for a mortgage.
“This technology innovation is a ‘win-win’ for renters looking to own a home,” Frater said. “That is, there is no way it can hurt their credit score, and it will only be used to help eligible homebuyers qualify for mortgage credit.”
Frater added that a recent sample of applicants who had not owned a home in the past three years and did not receive a favorable recommendation through Desktop Underwriter showed that 17 percent could have been recommended for a mortgage if rental payment history had been considered.