Hello, LOs!
Consumers with little or bad credit can take steps to improve their credit scores in order to qualify for mortgage financing.
But could finding bigger-picture solutions for those who are "credit invisible" unlock an entirely new cohort of mortgage-ready homebuyers?
Consumers can certainly get credit counseling to try and improve their spending habits in the eyes of credit reporting agencies. They can also hire firms to scrub old or erroneous charges from their records, although the credit repair industry has seen some high-level scandals in recent years and continues to draw scrutiny from the Consumer Financial Protection Bureau.
Compared to those with good (46%) or great (34%) credit scores, potential borrowers with fair credit said they have the most difficulty in the homebuying process, a recent study by real estate tech firm OJO Labs found.
During a panel hosted by Housing Finance Strategies, Lisa Rice, CEO of the National Fair Housing Alliance, explained that financial services providers concentrated in minority communities often don't report positive credit payments to the credit bureaus.
"Communities of color are credit deserts, banks are sparsely located in these communities," said Rice. "Financial services providers that are hyper-concentrated in those communities don't report positive behavior."
Laurie Goodman, vice president for housing finance policy at the Urban Institute, said the "number one" issue on her policy wishlist is the inclusion of positive rental payments in credit scores. "If someone is evicted, that will show up on their credit record," said Goodman. "And we know that rent payments are similar in size to mortgage payments… but information on rental payments is missing."
The FICO credit score model — which dates to the 1990s — leaves rent payments out of the equation. Although they have not phased out the FICO credit score model, federal agencies are taking steps to better serve the credit-challenged. Starting this week, Fannie Mae said it would include positive rental payments in its automatic underwriting system.
LOs, have you used the positive rental payment system yet? Please share your experiences by sending a note to gkromrei@housingwire.com
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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