In September, Fannie Mae announced it will allow single-family lenders to consider recurring rent payments in the applicant’s bank statement data to deliver a more inclusive credit assessment for customers.
This new feature means qualified renters who have a limited credit history, but timely rent payment history may be able to qualify for a home loan through Fannie Mae. Only consistent rent payments will be considered to improve eligibility, and any missed or inconsistent rent payments will not negatively affect the applicant’s ability to qualify for a loan. Any rent payments that appear on a customer’s bank statement will be identified automatically if they opt-in to the new feature.
This consideration requires the use of one of Fannie Mae’s Desktop Underwriter (DU) validation services. The bank statement data must be pulled through the DU Verification of Assets (VOA). It does not allow the applicant to simply provide bank statements to the MLO for use by Underwriting. The applicant will be required to enter bank account access information to allow DU to pull the necessary data for the VOA.
With the ruling, we may see many positive changes throughout the real estate and lending industries as this is a major step in expanding the dream of homeownership to those who may not have previously qualified due to more traditional underwriting guidelines.
According to Fannie Mae, in a recent sample survey, it is estimated almost 17% of applicants that were rejected for a mortgage three years in a row, will now be eligible to receive a home loan if their rent history is considered.
Fannie Mae declares credit history as the key element to obtaining a home loan, but it is estimated fewer than 5% of renters report their rent payments to their credit bureau, placing many first-time homebuyers at a serious disadvantage.
Not only does credit history negatively impact many first-time homebuyers, but of that same population it disproportionately affects Black and Hispanic homebuyers. Fannie Mae’s National Housing Survey found Black consumers identified insufficient credit score as being the biggest obstacle to being preapproved for a mortgage.