Hello, LOs!
Fannie Mae's decision this week to consider positive rent payments in their underwriting process -- that is, on-time payments help the borrower, but missed rent won't hurt them -- did not sit well with many of you.
Chief among your concerns: Why would the government sponsored entity leave off missed payments?
"I can't believe [Fannie Mae] is that stupid, or that our [government] condones this kind of underwriting," wrote one California-based LO. "I'm shocked and extremely disappointed to hear this. What about all the borrowers who work to keep current in order to qualify?"
Another LO told me that leaving out missed rental payments was akin to saying, "A borrower makes a car payment each month and they missed a few — but we're not going to hold that against them."
The announcement also seems to have taken the industry by surprise. One large lender I spoke to said while they applauded the policy, they had no idea it was coming.
While the rental history does not require any action on the part of the lender — besides providing the borrowers' consent and sharing their bank statement data — it remains to be seen how the industry will adjust. One LO told me they do not typically look at more than three months' of bank statements, so his firm will hold off on offering the program for now.
Other lenders may seize the opportunity to expand mortgage credit to underserved communities. Doing so could have immediate material benefits, allowing the lender to more easily meet Community Reinvestment Act requirements and avoid additional fair lending scrutiny from the Consumer Finance Protection Bureau.
The industry is also grappling with the larger question of balancing greater accessibility to homeownership with sound underwriting. Some LOs expressed concern that if Fannie Mae turn a blind eye to missed rental payments in order to expand credit to underserved communities, there could be repercussions down the road. If those loans were to eventually default, who would shoulder the blame?
Stay tuned for a story that takes a closer look at what the agency change means for the mortgage industry.
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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