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.
"For many households, rent is the single largest monthly expense. There is absolutely no reason timely payment of monthly housing expenses shouldn't be included in underwriting calculations," said Federal Housing Finance Agency (FHFA) Acting Director Sandra L. Thompson. "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."
A new study by RentCafe has found that rental activity is returning to pre-pandemic levels—up 13% in the first half of 2021 compared to the same time in 2020, led by Generation Z (the generation born between 1997-2012), who accounted for the largest increase in applications for apartments, 39% compared to the year prior, with many entering the rental market for the first time.
This spike in rental activity, combined with mortgage rates still below the 3% mark, may kick-start a new generation of buyers who have been on the sidelines.
“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, CEO of 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.”
According to Fannie Mae’s new update, 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.
"This new procedure will utilize information already available to lenders without adding any burden to homebuyers," said David M. Dworkin, President and CEO, National Housing Conference. "By analyzing bank statements that have already been submitted, Fannie Mae’s Desktop Underwriter automated underwriting system will be able to confirm that past rent payments were made on time. When Fannie Mae tested the system on past applicants that were not approved, 17% would have qualified using the new policy. This will have a material impact on mortgage applicants who are qualified but have been left out of homeownership."
Fannie Mae research has found that lenders factoring in first-time homebuyers’ history of consistent rent payments is one significant difference between applicants qualifying and not qualifying for a mortgage. As Dworkin noted, 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 DU, 17% could have received an Approve/Eligible recommendation if their rental payment history had been considered.
Tom Wind, EVP of Consumer Lending at U.S. Bank, added, “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. We support Fannie Mae’s efforts and are excited to roll-out this impactful feature.”