Hello, LOs!
It was a big deal when Fannie Mae announced it would include (positive-only) rental payments in its underwriting process. Freddie Mac made a move in the same vein last week, when it announced it would provide incentives to landlords for reporting rental payments through a platform called Esusu.
Some wondered if taking into consideration only positive rental payments would amount to an inappropriate opening of the credit box. FHFA Acting Director Sandra Thompson later said that positive rental payment history is "not the only indicator that goes into consideration when you're underwriting the loans."
So, I was curious to know whether, besides just increasing the pool of applicants for GSE loans, including rental payment history actually enhances the predictiveness of credit scoring models. Credit scores measure how likely a borrower is to default on a loan.
In a 2020 study of public housing residents in Seattle, Washington, Louisville, Kentucky, and Cook County, Illinois, HUD asked how credit scores of 16,626 tenants would change if their "full-file" of rent payments — both on-time and late — were included in their credit score. The study used FICO Score 9 and VantageScore 3.0.
Public housing tenants, the study notes, currently have credit scores well below average. Up to two-thirds of those with credit scores are rated as "subprime," which means they had credit scores below 620. Up to half of all tenants studied were "credit invisible" using one or both of the credit score models.
Including the "full-file" data in credit scoring models didn't always have a positive impact on scores, although in most cases it did. In some cases it led to a decrease.
But the study found that including the full-file rental payment data dramatically reduced credit invisibility, from 49% to 7% in one credit scoring model, and from 11% to 0% in the other model. There are an estimated 45 million consumers without a credit file, or who are otherwise unscoreable, according to the CFPB.
LOs, I'd be interested in your thoughts on whether you agree with the GSEs' overall approach. Would you prefer to see more efforts to lift consumers' credit scores, or should the GSEs instead be easing their requirements to serve more borrowers?
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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