Pay your mortgage bill on time and your credit score will go up. Pay your rent and it won’t.
That dynamic has made it harder for renters to qualify for an affordable mortgage and become homeowners. Now Fannie Mae is trying to change that.
The finance giant is making a change to its underwriting system that will factor in borrowers’ rent payment history when looking at qualifications for a mortgage application. The change is set to go into effect on September 18, according to the Wall Street Journal.
Borrowers without strong credit histories are historically at a disadvantage to acquire a home loan. Lenders are not required to consider the rent payment history of applicants if a borrower has a good enough credit score. Rent payments are not usually included in credit reports, though, and therefore not included in credit scores either.
Beginning next month, Fannie Mae’s system will automatically be able to identify rent payments utilizing borrowers’ bank account information, which they would need to give Fannie Mae permission to access. Twelve months of consistent payments could prove beneficial to applicants, but they wouldn’t be penalized for missed payments.
Fannie Mae is not responsible for making the loans, but the company’s system tells lenders if a loan would be eligible to be sold to the company, which packages them into securities for investors.
First-time home buyers would have benefited greatly in recent years from the change, with 17 percent of loan applicants who were rejected in the last three years subject to approval if rent payments were taken into consideration.
The rent payment data still wouldn’t help applicants who pay rent in cash.
[WSJ] — Holden Walter-Warner