Fannie Mae Wants to Help Renters Qualify for Mortgages More Easily
Aug. 27, 2021, at 11:17 a.m.
First-time homebuyers who want to transition from paying rent to owning a home could benefit from a new underwriting program from Fannie Mae that allows lenders to consider rent payment history.
Fannie Mae is a privately owned, but government supported, organization that backs the mortgage loans that lenders make and resell to investors.
While credit bureaus and scoring companies are starting to include rent and utility payments in consumers' credit records, those factors are traditionally not considered by Fannie Mae or its sister organization, Freddie Mac. Both organizations – which back many of the mortgages in the U.S. – instead use older versions of the FICO credit scoring system that don't factor in rent and utility payments when helping lenders underwrite mortgage loans.
How Will These New Rules Change Mortgage Underwriting?
Starting Sept. 18, 2021, lenders working with Fannie Mae on mortgages can use a new feature in Fannie Mae's Desktop Underwriting program that includes rent payments in a mortgage applicant's credit evaluation process.
Typically, a lender will consider the credit report as well as the FICO score when evaluating whether an applicant can get a loan. With this new feature, Fannie Mae can let the loan officer know if a borrower might benefit from a rent payment review, says Fannie Mae spokesperson Rachel O'Grady.
Credit history is an important way to assess a homebuyer's ability to make a mortgage payment, but prospective first-time homebuyers are at a disadvantage if rent payments are not on their credit reports, O'Grady says. "According to Fannie Mae research for first-time homebuyers, lenders considering their consistent rent payments can be the difference between them qualifying and not qualifying for a mortgage."
Ron Haynie, senior vice president of housing finance policy for the Independent Community Bankers of America, agrees that rental payment history is a good indicator of mortgage payment likelihood.
"Lenders have always tried to obtain a rental reference from the consumers' landlord. While they were helpful in the underwriting process, most of these written references did not provide much detail, and there was no way to be sure they were even accurate," Haynie says. "What's different about the new Fannie Mae product is that they use the actual payment data from the consumer's bank account over 12 months to verify on-time payment of rent."
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