Editor’s note: This article previously suggested that VantageScore was the only alternative credit score model under consideration by the FHFA. The FHFA is considering a number of alternative credit models.
Freddie Mac wants to encourage multifamily landlords to report positive rental payments to the credit bureaus to give renters a better shot at qualifying for a mortgage.
The government-sponsored enterprise will provide closing cost credits on multifamily loans for rental landlords who agree to report on-time rental payments through Esusu Financial. Esusu, a credit-building fintech, will deliver the on-time rental payment reports from landlords’ property management software to the credit bureaus. Freddie Mac negotiated discounted fees for Esusu’s services.
Much like Fannie Mae’s recent move to include rental payments in its underwriting process, only on-time rent payments will be included. Taking into consideration on-time rental payments is one way the government-sponsored enterprises are hoping to gain a clearer picture of borrowers’ credit profile. Currently, only 10% of renters benefit from on-time rental payments as part of their credit scores, which limits their ability to access credit, Freddie Mac said in a release.
“Rent payments are often the single largest monthly line item in a family’s budget but paying your rent on time does not show up in a credit report like a mortgage payment,” said Michael DeVito, CEO of Freddie Mac. “That puts the 44 million households who rent at a significant disadvantage when they seek financing for a home, a car or even an education. While there remains more to do, this is a meaningful step in addressing this age-old problem.”
The biggest obstacle to reporting on-time rental payments, according to Freddie Mac, is the administrative and compliance burden for landlords. Esusu manages the reporting process end-to-end and ensures compliance.
As part of Freddie Mac’s mission to provide liquidity, stability, affordability and equality to the housing market, Freddie Mac created its Housing Solutions team in 2020 to reduce barriers to homeownership and provide solutions to some of the nation’s toughest housing challenges.
Presented by: Freddie Mac
Esusu can report up to two years of past on-time rental payments, enough to move the needle on consumer credit scores. Currently, when rents are reported to the credit bureaus, it’s mostly to ding consumers’ credit reports for missed payments when they go to a collections agency, said Alexis Sofyanos, senior director of equity in multifamily housing at Freddie Mac.
“Freddie Mac wants to flip that script, so that renters who pay their rent on time and in full each month get credit for doing so, while also putting in safeguards for the most vulnerable,” Sofyanos said.
Esusu’s platform also allows renters to verify their rental history. Esusu co-founders Samir Goel and Abbey Wemimo said that the partnership with Freddie Mac allows them to tackle credit invisibility, which disproportionately afflicts people of color. In a prepared statement, Goel and Wemimo said that there are 45 million adults in America with no credit score, “the vast majority of whom are immigrants, minorities and low-to-moderate income households.”
“The benefit of the Esusu platform is that everyone wins,” said Goel and Wemimo. “It’s a win for renters, property owners and society at large.”
While Fannie Mae and Freddie Mac have now both taken steps to allow renters to more easily access credit, their regulator, the Federal Housing Finance Agency, is considering whether to allow the GSEs to use an alternative credit score model. One alternative under consideration, developed by VantageScore Solutions, includes data like rental and utility payments, which it claims allows it to score 96% of the adult population. VantageScore is owned by the three major credit bureaus. A new FICO score, which factors in rental data, is also under consideration by the regulator.
FHFA Acting Director Sandra Thompson has also recently said she would like the GSEs to take into consideration other non-traditional data sources, such as cell phone payments.