Effective September 18, more renters may qualify for a mortgage under Fannie Mae’s updated underwriting process. The rules have changed to incorporate consumers’ rent payments to better serve the “credit invisible” of America who are historically under-served by traditional lending products.
Fannie Mae’s Desktop Underwriter® will automatically identify recurring rent payments based on banking data to improve mortgage eligibility.
It’s estimated that about 17% of previously rejected applicants could now be approved for a mortgage, simply due to their rental history.
Hugh R. Frater, Chief Executive Officer of Fannie Mae said that this 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.”
Rent payments will only positively impact eligibility.
Although Fannie Mae does not handle loans simply backs them, applicants can be pre-approved through their process to private lenders. Credit history is one of the most important factors in getting approved for a mortgage, but less than 5% of renters have their rent history on their credit report.
Fannie Mae is changing this to expand opportunities for under-served consumers. Even more importantly, the rent payment history will only be used to improve eligibility. Missed payments or inconsistent history will not negatively affect a person’s ability to qualify for a loan.
However, consumers will need to have a digital history of making payments, whether to the property management company through their payment portal or by check or another digital solution.
Rental history directly relates to paying your mortgage on time.
Lenders want their mortgage payments to be on time. That’s the simplified bottom line.
Rent is one of the biggest expenses in any renter’s budget, but it rarely gets reported to the credit bureau without a third party reporting tool like CoreLogic’s RentTrack. This move by Fannie Mae will help level the playing field for renters who are responsible borrowers.
Welcome to the 21st century, Fannie Mae (and America).