Fannie Mae Incorporates Rental History into Mortgage Origination Process
Fannie Mae Incorporates Rental History into Mortgage Origination Process, Creates Greater Inclusivity and Opportunities.
August 17, 2021
Fannie Mae announced the company will now incorporate consumers’ rent payments in the mortgage credit evaluation process. The historic announcement comes at a time when racial wealth disparities have widened. The new underwriting program allows for more inclusive credit assessment which may create opportunities to expand homeownership. This is good news for qualified renters that may have limited credit, but strong rent payment history.
Credit history is a key component in evaluating a borrower’s ability to make a mortgage payment. Since rental history is almost never included in credit reporting, many prospective homebuyers are at a disadvantage. This is especially true for Black and Hispanic buyers. According to Fannie Mae’s National Housing Survey, ® Black consumers identify insufficient credit score or credit history as their single biggest obstacle to getting a mortgage compared to their white counterparts, (Fannie Mae). But rental payment history is a crucial indicator for future mortgage performance. The Urban Institute writes that the evidence suggests that rental payment history predicts mortgage performance significantly better than credit scores, (Goodman and Zhu).
The greatest impact of the new underwriting program will be to Black and Hispanic borrowers who tend to have lower credit scores than white borrowers due to years of exclusionary policy, structural racism, and mortgage discrimination. The new program is an important step in the right direction to help right the inequities of our checkered lending past. The process will allow for greater inclusivity by reducing barriers to homeownership and providing opportunities to serve more potential homeowners. The new policy will open doors to many potential homeowners previously locked out of the market.
“Fannie Mae Introduces NEW Underwriting Innovation to Help More Renters Become Homeowners.” Fannie Mae Introduces New Underwriting Innovation to Help More Renters Become Homeowners | Fannie Mae, Fannie Mae, 11 Aug. 2021, 1:26 pm, www.fanniemae.com/newsroom/fannie-mae-news/fannie-mae-introduces-new-underwriting-innovation-help-more-renters-become-homeowners.
Goodman, Laurie, and Jun Zhu. “Fannie Mae’s Decision to Incorporate Rental Payments into the Mortgage Origination Process Will Expand Access TO Homeownership over Time.” Urban Institute, Urban Institute, 12 Aug. 2021, 1.24 pm, www.urban.org/urban-wire/fannie-maes-decision-incorporate-rental-payments-mortgage-origination-process-will-expand-access-homeownership-over-time?utm_medium=linkedin&utm_source=urban_social.