Fannie Mae Embraces the Predictive Power of Rental Payment History
Realizing the predictive power of rental payment history, as of September 18, 2021, Fannie Mae will incorporate consumer rent payments within its automated underwriting system, Desktop Underwriter®. One of the most widely used underwriting platforms in the industry, the incorporation of rental payments will enable lenders using Desktop Underwriter® to offer consumers the option of having rental payments included on their mortgage application to enhance their eligibility. There are two key features built in to ensure this is a consumer friendly advancement: 1) Consumers must give their lender permission to consider their rental payment history as part of underwriting; 2) Use of this data can only serve to benefit the consumer’s application; missed or inconsistent rental payment will not negatively impact an applicant’s eligibility.
This change has the power to help those for whom homeownership feels out of reach due to their credit score. According to the Financial Health Network, more than 1 in 3 adults, 91 million people, are credit-challenged. This includes 38 million adults with credit scores below 600 and 53 million more without a credit score. Renters are seven times more likely to be credit challenged compared to homeowners. People of color are disproportionately likely to have low or no credit scores and rent homes due to centuries of racial discrimination and predation from the financial industry. By including rental payment data, Fannie Mae estimates that of those denied a mortgage and had not owned a home in the past three year, 17 percent would now qualify for a mortgage.
While this development does not mean that more renters will be able to build credit through rental payments (as they would through traditional rent reporting), it goes a long way to standardize the use of rental payment data as a key factor that can be used to evaluate consumer risk. CBA applauds Fannie Mae’s efforts and hopes to see other industry players follow its lead to harness the power of rental data to eliminate the racial wealth gap!
Read the press release from Fannie Mae here.