Fannie Lenders Can Consider Rental Payments in Credit Evaluation
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae will launch a feature next month that will incorporate rent payments into the credit evaluation process.
Beginning September 18, 2021, Fannie Mae’s Desktop Underwriter (DU) will enable single-family lenders – with permission from mortgage applicants – to automatically identify recurring rent payments in the applicant’s bank statement data to deliver a more inclusive credit assessment.
Fannie said the move is designed to help applicants with limited credit history, yet have a strong history of making rent payments.
“Many renters believe they will never be able to buy their own home because of insufficient credit. We can responsibly expand mortgage eligibility by including positive rent payment history in underwriting risk assessments,” said Fannie Mae CEO Hugh R. Frater. “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.
Fannie also noted that while strong rental payment history will enhance credit eligibility, missed or inconsistent payments will not negatively affect an applicant’s ability to qualify for a loan.
Fannie said fewer than 5 percent of renters have their rent payments reported on their credit bureau report, putting many prospective first-time homebuyers at a disadvantage. Approximately 20 percent of the U.S. population overall has little established credit history – a group in which Black and Hispanic consumers are disproportionately represented.
Fannie indicated that the move could increase the market for new home purchases. In a recent sample of mortgage applicants who had not owned a home in the past three years and did not receive a favorable recommendation through Desktop Underwriter, 17 percent could have received an Approve/Eligible recommendation if their rental payment history had been considered.
The move comes at a time when fewer people think it’s a good time to buy a home.
The Fannie Mae Home Purchase Sentiment Index decreased in July, as consumers continue to report concerns related to high home prices and a lack of homes for sale.
The percentage of survey respondents who say it is a good time to buy a home decreased from 32 percent in June to 28 percent in July. The percentage who say it is a bad time to buy increased from 64 percent to 66 percent.
“Consumer sentiment toward homebuying hit yet another survey low in July, continuing the sharp downward trend established in March,” said Doug Duncan, Fannie Mae senior vice president and chief economist.
Enabling more renters to qualify for mortgage loans will only increase the first-time buyers market if existing home prices moderate.
According to the National Association of Realtors, the lack of supply resulted in an an increase in median sales prices for existing single-family homes in all but one of 183 measured markets during the second quarter of 2021. In additional, 94 percent of those markets experienced double-digit price increases.
"Housing affordability for first-time buyers is weakening," said Lawrence Yun, NAR chief economist. "Unfortunately, the benefits of historically-low interest rates are overwhelmed by home prices rising too fast, thereby requiring a higher income in order to become a homeowner.”
There is some hope down the road, however, as NAR sees signs that more supply is reaching the market, and there is some tapering of demand.
"The housing market looks to move from 'super-hot' to 'warm' with markedly slower price gains,” Yun said.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
