Fannie Mae Introduces New Underwriting Innovation To Help More Renters Become Homeowners

Rhea-AI Summary

Fannie Mae (OTCQB: FNMA) will launch a feature in its Desktop Underwriter® on September 18, 2021, that includes consumers' rent payments in mortgage credit evaluations. This enhancement aims to assist renters with limited credit histories but good rent payment records, promoting homeownership opportunities. Positive rent payment history can improve eligibility without penalizing applicants for missed payments. Only consistent payments will be considered. This move addresses credit barriers, particularly for Black and Hispanic consumers, by expanding mortgage accessibility.

Positive

• Launch of a feature that factors in rental payments for mortgage credit evaluation.
• Aims to improve homeownership opportunities for renters with limited credit histories.
• Positive rent payment history enhances eligibility without penalizing for missed payments.
• Addresses credit barriers, particularly for minority consumers.

Negative

• None.

WASHINGTON, Aug. 11, 2021 /PRNewswire/ -- Fannie Mae (OTCQB: FNMA) today announced the company will launch a new feature in its automated underwriting system to incorporate consumers' rent payments in the mortgage credit evaluation process. Beginning September 18, 2021, Fannie Mae's Desktop Underwriter^® (DU^®) will enable single-family lenders – with permission from mortgage applicants – to automatically identify recurring rent payments in the applicant's bank statement data to deliver a more inclusive credit assessment. For qualified renters who may have limited credit history but a strong rent payment history, Fannie Mae's DU enhancement creates new opportunities for homeownership while promoting safe and sound lending.

The new update to DU is a positive change for eligibility – only consistent rent payments will be considered to improve eligibility. Any records of missed or inconsistent rent payments identified in the bank statement data will not negatively affect the applicant's ability to qualify for a loan sold to Fannie Mae. Rent payments that appear in the payment history of the borrower's bank account data can be identified, whether made via check or electronically, such as via a company's payment portal or other digital payment solution.

"Many renters believe they will never be able to buy their own home because of insufficient credit. We can responsibly expand mortgage eligibility by including positive rent payment history in underwriting risk assessments," said Hugh R. Frater, Chief Executive Officer, Fannie Mae. "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 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. We look forward to working with our industry partners to do what we can together to address this and other barriers to homeownership."

"U.S. Bank is committed to housing equity, and allowing us to expand sustainable homeownership opportunities for underserved markets and consumers by factoring in rent payment history is an important and welcome change," said Tom Wind, Executive Vice President, Consumer Lending, US Bank. "We support Fannie Mae's efforts and are excited to roll-out this impactful feature."

Credit history is a key element in evaluating a borrower's ability to make a mortgage payment, but fewer than 5% of renters today have their rent payments reported on their credit bureau report, putting many prospective first-time homebuyers at a disadvantage. Approximately 20% of the U.S. population overall has little established credit history – a group in which Black and Hispanic consumers are disproportionately represented. Additionally, Fannie Mae's National Housing Survey^® found that Black consumers identify insufficient credit score or credit history as their single biggest obstacle to getting a mortgage and do so at a much higher rate compared to white consumers (29% to 18%).

According to Fannie Mae research, lenders factoring in first-time homebuyers' history of consistent rent payments is one significant difference between applicants qualifying and not qualifying for a mortgage. In a recent sample of mortgage applicants who had not owned a home in the past three years and did not receive a favorable recommendation through Desktop Underwriter, 17% could have received an Approve/Eligible recommendation if their rental payment history had been considered.

About Fannie Mae

Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of people in America. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit:
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SOURCE Fannie Mae

FAQ

What is Fannie Mae's new underwriting feature for renters?

Fannie Mae's new feature allows the inclusion of consumers' rent payments in mortgage credit evaluations starting September 18, 2021.

How will the new underwriting feature affect mortgage eligibility?

The feature aims to improve mortgage eligibility for renters with consistent rental payment history, even if they have limited credit history.

What is the significance of including rent payment history in underwriting?

Including rent payment history helps address credit barriers for underserved markets and can increase homeownership opportunities.

When will the new feature be implemented?

The feature will be implemented on September 18, 2021.

How many renters currently have their rent payments reported on credit records?

Fewer than 5% of renters have their rent payments reported on credit bureau reports.