Fannie Mae and Freddie Mac have each agreed to purchase residence loans when mortgage lenders consider on-time rental payments into their underwriting calculations. Missed rental payments won’t keep potential borrowers from getting a mortgage. Fannie Mae started accepting such loans in September 2021, while Freddie Mac will begin on July 10, 2022. Both government-sponsored enterprises hope this option will help more renters aspiring to become homebuyers improve their mortgage eligibility.
Mortgage lenders can extract the details about a possible borrower’s previous 12-month rental on-time payments from their bank accounts, with the applicant’s permission, permitting them to approve individuals they may, in any other case, deny.
Homebuyers and mortgage lenders do not have to take any additional steps to use the feature as the change has already been incorporated into Fannie Mae’s Desktop Underwriter. Freddie Mac will provide additional requirements for submitting rent payment data to its automated underwriting system sometime in July 2022.
Rent is often the largest monthly household expense for individuals and families. Including this common expense in underwriting calculations is a positive step toward expanding access to credit to qualify for homeownership, particularly for low-to-moderate income and underserved communities. Considering rental history is particularly important for the 20% of the U.S. population – disproportionately Black and Hispanic consumers – with insufficient credit history.
This decision is likely to help more low-to-moderate income renters qualify for a mortgage at a time when many are getting squeezed out as mortgage credit availability has sharply decreased since early 2020, according to the MBA. In a study conducted in early 2021, Fannie Mae found that 17% of denied applications would have been approved had their rental history been considered.
Since Fannie Mae began purchasing residential loans from lenders who consider on-time rental payments when assessing mortgage applications in September 2021, it’s been reported that 2,000 mortgage applicants have become eligible for loans that, in any other case, would not have been. Of those, roughly 41% of the debtors recognized themselves as Black or Latino/Hispanic.
Mortgage lenders who provide prospective homebuyers with their private-labeled FinLocker to prepare for homeownership have the advantage of collecting rental payment transactions and other financial data quicker than their competitors. Consumers using FinLocker can easily share their bank transaction statements and other financial data and documents directly from their FinLocker app with their lender or originator to start their mortgage application. This shared consumer-permissioned data essentially prefills the mortgage application by creating a Day 1 Certainty Assets report with a PDF of the borrower’s documents, then creates a 1003 in the lender’s LOS.