Fannie Mae will start factoring in rental payment history to its mortgage decisioning starting on September 18.
Fannie’s Desktop Underwrite will identify consistent rental payments over the most recent 12 months to give historically underserved populations a more inclusive measure of fiscal health.
The rental history incorporation can only weigh positively in a consumer’s credit assessment, and Malloy Evans, Executive Vice President and Head of Single-Family at Fannie Mae. If the applicant had any missed payments from the last 12 months, the rent consistency does not get factored into the approval process since a payment gap could indicate that the renter paid using a credit card or cash.
Fannie Mae does not require lenders to consider rent history, if a borrower has a credit report and score that meet the company’s criteria. But credit reports often don’t include residential-rent payments because most landlords don’t report the data to credit-reporting firms. Renters’ credit scores, which are based on information in their credit reports, as a result also do not reflect that data.
The issue has been problematic for consumers with limited borrowing histories, who have difficulty getting approved for affordable credit.
“In some markets, it’s just as expensive to rent as it is to own,” said Hugh Frater, Fannie Mae’s chief executive. For many renters, “they have the history of making payments, which in my opinion should be equally and fairly considered in their ability to pay a mortgage.”
To Frater’s point, in most of the largest metropolitan areas in the U.S., the typical cost of rent exceeds the typical cost of a monthly mortgage payment.
Zillow did some digging and founds that 33 of the nation’s 55 biggest metros had higher rent payments than mortgages. This includes cities like Memphis, Miami, Atlanta, Charlotte and Tampa.
This new change to Fannie Mae’s guidelines will open up more doors to buyers. And this will allow them to qualify for a mortgage.
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Ken Thayer: kthayer@rfmoc.com
