Mortgage giant Fannie Mae plans to pay rent on time with mortgage approval


Millions of landlords with little or no credit have long been excluded from the American dream of owning a home. For some, it’s about to change for the better.

Starting September 18, mortgage giant Fannie Mae will look at the latest 12-month rent payment history when lenders run an automated credit check system. Ambitious landlords should allow Fanny to search rental payment records from checking accounts or electronic services such as PayPal and Venmo.

Under the current system, landlords do not report rent payments to the three major credit rating agencies and are not included in traditional consumer credit score calculations. However, mortgage payments are included. Supporters have long fought to close this gap. It’s a great track record of responsible payment of rent on time and can effectively block first-time buyers.

“For many households, rent is the highest monthly cost. There is absolutely no reason why timely payments of monthly housing costs should not be included. [mortgage] Subscription calculation ”. Sandra L. Thompson, deputy director of the Federal Housing Finance Agency, Fanny’s regulator, said in a statement last month.

Fannie Mae estimates that about 17% of applicants in the past three years are eligible for a mortgage, given their rental history. It may not seem like much, but it includes the hoards of Americans most affected by discriminatory housing policies dating back more than a century.

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“Powerful additional tools”

“It’s a very powerful addition to help those left behind in this part of the market,” Cecilia Isaac, chief lender of One United Bank, the largest black-owned bank in the United States, told CBS Money Watch. United.

Fannie Mae CEO Hugh Freighter said in a recent blog post that he intentionally aims to narrow the racial wealth gap. According to the census at the end of June, about 45% of black Americans owned a home in the second quarter, compared to 74% of white Americans. It is, The booming single-family home market..

Yet, according to a recent Urban Institute study, a history of on-time rent payments could be a good credit indicator of someone paying a mortgage on time. Junchu, co-author of the Urban Institute research and clinical assistant professor at Indiana University at Bloomington, said those who pay their monthly mortgages within a year traditionally have grades of weak credit. Including, he specifies that there is a possibility of default of around 2.8%. ..

“Currently using the new Fannie Mae system, [potential borrowers] I have a second chance. And this shows that the probability of default is actually very low. So, it’s really good to factor in the rent payments. “

Another important feature is that consumers don’t lose their chances of buying a home if they miss or delay payment. Fannie Mae will only use the information if it increases creditworthiness and the likelihood of personal approval, as announced in August. Future homeowners can reapply if their credit score improves and they don’t have to worry about bad things related to previous rent checks.

“If you go through this process and the results of your rental history are not positive, you will not lose your ability to qualify on a regular basis. They won’t use it for you, and that’s what consumers know. It’s important, ”said Isaac of One United.

Closing the wealth gap

In total, about 45 million Americans have poor or limited credit histories. It’s hard to apply for a mortgage, I found a 2015 report from the Consumer Financial Protection Bureau. Black and Hispanic applicants are likely to have little or no background, which contributes to the country’s large wealth gap.

“Home ownership creates wealth in the sense that it has assets that are valued over time. It serves as the basis for retention, transfer to relatives and ascension. “Issac said:” The constitution of equity in the house makes it possible to bridge a significant number of wealth gaps. “

For Jenn Gummel, a real estate agent in Dover, Delaware, the change in rental income will not be immediate. Most first-time buyers she meets ask her if she can include rental history, but are surprised to find that she can’t, she told CBS MoneyWatch.

“Almost all first-time buyers have told me, ‘I really want the subscription to reflect my rental payment history.’ Well, that’s what they’re actually saying. No, but that’s what they’re trying to say. “

Gummel remembers a recent client in New York City who was refused a mortgage application.

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“They were paying crazy rent and their rent in New York. [in Delaware] I fell a lot. If they could have used their rent payment history, they probably could have secured a mortgage, ”Gambel said.

Fanny herself does not lend directly to the borrower. Instead, buy a mortgage from a lender, including a bank. Fannie Mae and her cousin Freddie Mac, known as the government sponsored agency, were part of a program created to help promote homeownership and build wealth in the decades following the Great Depression. Mortgages held by GSE are guaranteed by the federal government and also help protect lenders against financial collapse.

GSE owns over 60% of all mortgage loans in the United States. Therefore, if Fannie Mae says the loan is not a good risk, the bank will usually deny the request because the resulting mortgage cannot be sold to Fannie.

Experian, TransUnion, Equifax

These mortgage ratings are linked to credit scores like those used by three major credit bureaus: Experian, TransUnion, and Equifax. Mortgage underwriters use FICO scores published by Fair Isaac Corporation. According to experts, the lowest score for a traditional 30-year mortgage in a bank is usually 620. However, people with a score below 700 tend to be scrutinized.

Urban Institute Jun and Gammel said rent checks are optional, so consumers may want to defer if the score goes above around 700. Without it, it’s likely to be approved.

“Obviously if they have a credit score of 760 or 700 I don’t think they really need it. [the check]Gammel told CBS Money Watch. “These are really people who are right below or above the bar, just to give them a little push.”

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