Fannie Mae Shines Light on ‘Credit-Invisible’ Renters

Mortgage lenders will soon be able to consider applicants’ rent payment record

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In a move intended to give a boost to first-time homebuyers, mortgage giant Fannie Mae said it is giving mortgage lenders a way to take borrowers’ history of rent payments into account when they apply for credit.

Key Takeaways

  • Mortgage lenders now have a way to take on-time rent payments into account when deciding whether to approve applicants.
  • The new system, which launches in September, is voluntary on the part of applicants, and only positive rent history is taken into account.
  • The move is meant to help renters who have paid reliably, but who haven’t built credit through traditional sources.

Fannie Mae—a government-backed company that guarantees home loans—is  updating its automated underwriting system so that banks will be able to take an applicant’s history of rent payments into account when considering their creditworthiness for a mortgage, the company said Wednesday. The move is meant to help renters with a history of on-time payments show that they are creditworthy and able to make mortgage payments, and it’s not a double-edged sword. Missed or late payments won’t count against the applicant, Fannie Mae said.

The new system starts Sept. 18 and requires the applicant’s permission. 

Recent studies have shown that “credit invisibility” is a problem for some renters, especially low-income families, and that it limits their housing opportunities. Housing advocates have pushed for mortgage lenders to take rent history into account when judging credit risk. 

“For many lower-income renters—especially for Black families and other people of color—the leap from renting to owning can seem nearly impossible. For many, one of the biggest obstacles to qualifying for a mortgage is insufficient credit history,” Fannie Mae CEO Hugh Frater said in a blog post about the move. “This is one important step in correcting housing inequities and encouraging the housing system to develop new ways to serve all of society safely and fairly.”

The new rules have the potential to help a substantial share of renters get the green light for mortgages, Fannie Mae said. The company found that in a recent sample of applicants, 17% who had received an unfavorable evaluation would have been approved if their history of rent payments had been considered. 

The introduction of rent into mortgage considerations is “a significant innovation and a major step forward in expanding homeownership opportunities,” said David M. Dworkin, CEO of the National Housing Conference, a housing advocacy group, in a statement. “This will have a material impact on mortgage applicants who are qualified but have been left out of homeownership.” 

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