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On-time rent now counts in Fannie Mae underwriting

29% of Black consumers say insufficient credit score or credit history is the biggest obstacle to getting a mortgage

On-time rental payments will now factor in to Fannie Mae underwriting calculations, and missed rental payments won’t keep borrowers from getting a mortgage.

The Federal Housing Finance Agency today announced that positive rental payment history will be taken into account in the government sponsored entity’s underwriting system.

The change is effective immediately, through a change to the digital underwriting system used by the agency’s regulated entity. Borrowers and lenders do not have to take any additional steps to make use of the feature.

The FHFA’s acting director, Sandra Thompson, said that the change will make it easier for renters to become homeowners. Rent, she pointed out, is often the largest expense for families, and a history of paying it on-time should count for something.

“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 Thompson. “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.”​

Thompson has already made clear in her short tenure as head of the FHFA that expanding credit to low-income and minority communities is paramount. The Biden administration has also made clear it is committed to improving racial equity and taking steps to reduce the racial homeownership gap.

Less clear, however, are the specific policies that will accomplish those lofty goals.

Legislation to provide down payment assistance, which housing advocates say would help borrowers of color who do not have the benefit of generational wealth, is fighting its way through Congress. In July, a task force, co-chaired by former United Nations Ambassador Susan Rice and Housing and Urban Development Sec. Marcia Fudge, started to take a hard look at potential racial bias in the appraisal process.

Those efforts will take time to bear fruit. But in the immediate term, the impact of considering rental payment history in making credit decisions could be profound. In a study of recent unfavorable recommendations from its desktop underwriting system, Fannie Mae found that 17% of those would have been approved, had their rental history been considered.

Fewer than 5% of renters have rent payments reflected in their credit report. Taking into account rental history is particularly important for the 20% of the U.S. population — disproportionately Black and Hispanic consumers — that have little established credit history.

Twenty-nine percent of Black consumers say insufficient credit score or credit history is the biggest obstacle to getting a mortgage, according to Fannie Mae’s national housing survey, compared with 18% of white consumers.

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