Rental payment history will now be considered by Fannie Mae when making loan underwriting decisions, according to an announcement by the Federal Housing Finance Agency (FHFA).
That means that future borrowers, especially renters looking to become first-time homebuyers, will now be able to leverage their positive rental payment history when applying for a mortgage. Per the FHFA, there is “no additional burden” for either the lender or the borrower to make use of the new policy, which takes effect immediately.
“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,” said Sandra L. Thompson, acting director of the FHFA. “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.”
The change is consistent with a well-publicized goal of Thompson and the Biden administration at large: expanding credit availability to low-income and minority households. Consumer groups lauded the change as a move that broadens access to homebuying credit in a sound manner, especially for renters with limited borrowing histories.
“This is a critically important move for expanding access to mortgage credit,” said Mitria Wilson-Spotser, director of housing policy for the Consumer Federation of America (CFA).
“Considering rent will allow more consumers to demonstrate a responsible payment history and, as a result, decrease their risk assessment as part of the homebuying process. CFA strongly encourages the agency to adopt the same policy for Fannie Mae’s counterpart, Freddie Mac.”
The shift could indeed throw open the door to homeownership to many who were shut out by previous underwriting rules. According to Fannie, 17% of recent mortgage applicants who had not owned a home in the past three years and did not receive a favorable recommendation through its Desktop Underwriter system (DU) could have been approved if their rental payment history were taken into consideration.
DU, Fannie also announced, will automatically identify recurring rent payments in an applicant’s bank statement data beginning Sept. 18. Per Fannie, only consistent rent payment data will be considered to improve eligibility; any records of missed or inconsistent rent payments identified in bank data will not negatively affect a prospective borrower’s ability to qualify for a loan.
“We believe this will be the first time any large-scale automated mortgage underwriting system will leverage electronic bank statement data to consider positive rent payment history,” said Fannie Mae CEO Hugh Frater. “It is but one important step in correcting the housing inequities of the past, creating a more inclusive mortgage credit evaluation process going forward, and encouraging the housing system to develop new ways of safely assessing and determining mortgage eligibility in order to fairly serve all potential homeowners.”
