A New Fannie Mae Rule Could Help Renters Qualify for Mortgages

Categories: Homes Planning Real Estate Residents

Published 08/27/2021

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Would-be homebuyers with thin credit files will have a better chance of getting approved for a mortgage if they’ve been paying their rent consistently, thanks to changes to Fannie Mae’s automated underwriting system taking effect next month.

The changes to Fannie Mae’s Desktop Underwriter will take effect on September 18th, 2021. Fannie Mae CEO Hugh Frater said in a recent analysis by the Consumer Financial Protection Bureau, 16 percent of adults living in households that rent say they’re behind on their payments. Of the roughly 7.3 million adults living in households who are behind on rent, nearly half say they are somewhat or very likely to be evicted in the next two months.

According to Fannie Mae, about one in five Americans has little established credit history, with Black and Hispanic consumers more likely to have thin credit files. Less than 5 percent of renters get credit for their rent payments on their credit reports, Fannie Mae said.

When Fannie Mae ran a sample of renters who had been rejected by Desktop Underwriter, it found 17 percent could have been considered eligible if their rental payment history had been considered.

Frater characterized the change as “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 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.” Tom Wind, an executive with U.S. Bank, said the lender supports Fannie Mae’s efforts and is “excited to roll out this impactful feature.”

A recent analysis by TransUnion, one of the big three credit reporting agencies, found that half of the renters are classified as unscorable or have “subprime” credit scores that make it difficult to qualify for a mortgage.

Including rent payments in the credit file of those consumers allowed about 9 percent of that group went from unscorable to scorable, with an average VantageScore of 631, which is considered “near-prime.”

Consumers as a whole got an average boost of 60 points to their credit score when rent payments are included in their credit history, TransUnion said.

Another study by OwnUp found that it’s also important for homebuyers with average credit scores to take the time to compare mortgage rates because the rates they’re offered will tend to vary more than rates offered to applicants with excellent credit scores. Fannie Mae and Freddie Mac’s regulator, the Federal Housing Finance Agency (FHFA), issued an announcement supporting the change.

This article was produced by Matt Carter on inman.com. For the complete article and more information covering this topic, please click here.

Curious about your chances to qualify? Or seeking the assistance of a realtor to walk you through the process of getting approved for a loan? Contact Darryl Glass today at (510) 500-7531 to be connected with our preferred mortgage vendors. You can also click here to schedule a call with Darryl in the upcoming weeks at your convenience.