Fannie Mae announced last week that beginning September 18, 2021, they are going to start including rental payments in their credit evaluation process. This will be a new feature added to their Desktop Underwriter (DU). The information will be taken from the consumer’s bank statements and input into their system and it will recognize all consistent on-time payments.
Fannie Mae’s CEO, Hugh Frater, states that “Many renters believe they will never be able to buy their own home because of insufficient credit history. We can responsibly expand mortgage eligibility by including positive rent payment history in the underwriting credit risk assessment,” he further added, “we believe this will be the first time any large-scale automated mortgage underwriting system will leverage electronic bank statement data to consider positive rent payment history. It is but one important step in covering the housing inequalities of the past, creating a more inclusive mortgage credit evaluation process going forward and encouraging the housing system to develop more ways of safely assessing and determining mortgage eligibility in order to fairly serve potential homeowners.”
This will indeed open a lot of doors for potential homeowners who before could not quality due to a lack of credit history. It is estimated that this would boost DU approvals by up to 20%. This new feature could be the make-or-break factor for many otherwise unqualified buyers.
To clear up some confusion, this is not something that will be factored into the borrower’s credit scores. This is strictly a feature within the DU system, but it is not something that will impact credit scores.
There are companies out there that can have a borrower’s rent and other alternative credit become part of the actual credit report. And while the addition of these may have some impact on newer scoring models, they will not impact the mortgage scoring models that Fannie and Freddie accept. What Fannie Mae is doing is a very positive change to their underwriting system but it does not in any way affect the credit scores.
In an FHFA press release Director Sandra Thompson said “There is absolutely no reason timely payments of monthly housing expenses shouldn’t be included in underwriting calculations. With this update, Fannie Mae is taking another step toward understanding how rental payments can more broadly be included in a credit assessment, providing an additional opportunity for renters to achieve the dream of sustainable homeownership.”
Even though this does not affect credit scores, it is definitely a huge benefit for so many consumers who have a limited credit file but a good record of rental payment history.