Hello, LOs!
This morning, the Federal Housing Finance Agency demonstrated once again how much power the federal government has to set mortgage finance policy.
Now, Fannie Mae will take on-time rent payments into account during its underwriting process. That could make a huge difference for first-time borrowers, especially those who don't have an established credit history. That's about a fifth of the nation's consumers, per Fannie Mae.
But Fannie Mae won't penalize borrowers for missed rent payments. A Moody's analysis from earlier this year estimated the average past-due renter was $5,600 behind on rent.
"Any records of missed or inconsistent rent payments identified in the bank statement data will not negatively affect the applicant's ability to qualify for a loan sold to Fannie Mae," Fannie Mae said in a statement.
That means, theoretically, a renter could have been skipping their rent payments for much of the last 18 months, to save toward a federally backed mortgage.
Hugh Frater, Fannie Mae's CEO, said that including "positive rent payment history" in underwriting risk assessments will expand mortgage eligibility responsibly. Landlords, however, may see this as a way to reward — or at least, condone — not paying rent.
"We believe this will be the first time any large-scale automated mortgage underwriting system will leverage electronic bank statement data to consider positive rent payment history," said Frater. "It is but one important step in correcting the housing inequities of the past, creating a more inclusive mortgage credit evaluation process going forward, and encouraging the housing system to develop new ways of safely assessing and determining mortgage eligibility in order to fairly serve all potential homeowners. We look forward to working with our industry partners to do what we can together to address this and other barriers to homeownership."
At least one lender applauded the change, in prepared remarks accompanying the announcement — although the FHFA hardly needs lenders' approval.
"U.S. Bank is committed to housing equity, and allowing us to expand sustainable homeownership opportunities for underserved markets and consumers by factoring in rent payment history is an important and welcome change," said Tom Wind, U.S. Bank's executive vice president of consumer lending. "We support Fannie Mae's efforts and are excited to roll-out this impactful feature."
Fannie Mae also found that nearly a third of Black consumers surveyed cite insufficient credit score or credit history as the "single biggest obstacle" to getting a mortgage, versus 18% of white consumers.
What do you think of the GSE's decision to gloss over missed rent payments?
Send me an anonymous note at: gkromrei@housingwire.com
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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