Residential Magazine

Steve Holden, Fannie Mae

Rent history may nudge some applicants into homeownership

By Jim Davis

Fannie Mae launched an initiative this past September to use — for the first time — rent-payment history in determining mortgage credit eligibility. The company’s Desktop Underwriter platform allows lenders, with permission from mortgage applicants, to automatically identify recurring rent payments in the applicant’s bank statements.

If an applicant has been making on-time rent payments, it should demonstrate whether a first-time homebuyer will make mortgage payments, said Steve Holden, Fannie Mae’s vice president of single-family analytics. Using this data will allow the company to make mortgage credit available more safely and fairly.

“If you think about borrowers with a limited credit history, this information is going to be incredibly important as a way to help them to qualify,” Holden said. “It’s indicative of their ability to repay a mortgage and we think it should be considered.”
Holden spoke to Scotsman Guide about the new initiative and how he thinks it could repair housing inequities of the past. He also talked about what originators and their clients should know about the program.
How long has Fannie Mae been considering doing this?
This has been a well-known issue for a long time. The challenge has been the solution. The traditional thinking has been to get this data into a consumer credit report where it can be used by different credit-granting agencies.
Around 18 months ago, we started working on this project with a different approach, which is to utilize the bank-statement data. This is a place where we have much more control in the process. We’ve been collecting bank-statement data for the purposes of streamlining mortgage applications over the last four or five years.
How many potential borrowers could this affect each year?
We think this is going to have a meaningful but modest impact. We think this will translate into certainly thousands of families in the coming 12 months that will get a positive outcome because of this initiative. Importantly, we think this is going to grow in time.
How will it correct housing inequities of the past?
Black and Hispanic adults are more likely to have a limited credit history. In instances of limited credit history, considering success in other things can be the difference in whether or not one qualifies for a loan. So, we acknowledge that this is a modest but important step toward leveling the playing field.

We think this is going to have a meaningful but modest impact.

What’s been the reaction so far?
We’ve been out talking to lenders and housing advocates, as well as some industry stakeholders, and the response has been overwhelmingly positive.
Is there a plan to evaluate these loans in the future?
Day by day, we’re watching this data as it comes in. We’re watching to see how the program is working. Are borrowers taking advantage of the program? If not, why not? Over time, we’re going to be watching to see how these loans perform and what we can learn from that performance.
What should mortgage originators know about this?
For us to succeed, we really need to have lenders embrace this change. It’s really a partnership between us and the lender community. For a first-time homebuyer, we will run sort of a hypothetical exercise. If they’re not approved currently, would [the rental-payment history] get them across the threshold? If the answer is yes, we’ll send a message to make sure that the lender is aware of that.
What should originators tell borrowers about this?

It’s really important to emphasize that aside from borrowers needing to opt in, needing to grant access to the data, there’s really nothing for them to do on their part. It’s really a seamless exercise from the borrower’s perspective. 

We really want to make sure that these borrowers are set up in a position to succeed at homeownership. This is not about pushing our credit boundaries. If these are sustainable mortgages, then these opportunities should be afforded to these borrowers. This is really about fairness and sustainability. ●


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