Fannie Mae recently launched the company’s new feature in its automated underwriting system to incorporate consumers’ rent payments in the mortgage credit evaluation process. Beginning September 18, 2021, Fannie Mae’s Desktop Underwriter (DU) will enable single-family lenders, with permission from mortgage applicants, to automatically identify recurring rent payments in the applicant’s bank statement data to deliver a more inclusive credit assessment, Fannie Mae announced in a press release.

For qualified renters who may have limited credit history but a strong rent payment history, Fannie Mae’s DU enhancement creates new opportunities for homeownership while promoting safe and sound lending.

The new update to DU is a positive change for eligibility – only consistent rent payments will be considered to improve eligibility. Any records of missed or inconsistent rent payments identified in the bank statement data will not negatively affect the applicant’s ability to qualify for a loan sold to Fannie Mae, the release stated.

Rent payments that appear in the payment history of the borrower’s bank account data can be identified, whether made via check or electronically, such as via a company’s payment portal or other digital payment solution.

“Many renters believe they will never be able to buy their own home because of insufficient credit. We can responsibly expand mortgage eligibility by including positive rent payment history in underwriting risk assessments,” Fannie Mae Chief Executive Officer Hugh Frater said in the release.  “We believe this will be the first time any large-scale automated mortgage underwriting system will leverage electronic bank statement data to consider positive rent payment history. It is but 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 in order 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,” Frater added.

Credit history is a key element in evaluating a borrower’s ability to make a mortgage payment, but fewer than 5 percent of renters today have their rent payments reported on their credit bureau report, putting many prospective first-time homebuyers at a disadvantage, according to Fannie.

Approximately 20 percent of the U.S. population has little established credit history – a group in which Black and Hispanic consumers are disproportionately represented. Additionally, Fannie Mae’s National Housing Survey found that Black consumers identify insufficient credit score or credit history as their single biggest obstacle to getting a mortgage and do so at a much higher rate compared to white consumers (29 percent to 18 percent).

“U.S. Bank is committed to housing equity and allowing us to expand sustainable homeownership opportunities for underserved markets and consumers by factoring in rent payment history is an important and welcome change,” Tom Wind, executive vice president, Consumer Lending, U.S. Bank, said. “We support Fannie Mae’s efforts and are excited to roll-out this impactful feature.”

According to Fannie Mae research, lenders factoring in first-time homebuyers’ history of consistent rent payments is one significant difference between applicants qualifying and not qualifying for a mortgage. In a recent sample of mortgage applicants who had not owned a home in the past three years and did not receive a favorable recommendation through Desktop Underwriter, 17 percent could have received an approve/eligible recommendation if their rental payment history had been considered.