Fannie Mae wants to make it easier for tenants to qualify for mortgages


First-time buyers who want to switch from paying rent to owning a home could benefit from a new underwriting program …

First-time buyers who want to switch from paying rent to owning a home could benefit from a new Fannie Mae underwriting program that allows lenders to consider rental payment history.

Fannie Mae is a private, but government-backed organization that supports mortgages that lenders make and resell to investors.

As credit bureaus and rating companies begin to include rent and utility payments on consumers’ credit reports, these factors have traditionally gone unchecked by Fannie Mae or her sister organization, Freddie Mac. The two organizations – which back many mortgages in the United States – instead use older versions of the FICO credit scoring system that ignore rent and utility payments when helping lenders underwrite. mortgage loans.

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How will these new rules change mortgage pricing?

Starting September 18, 2021, lenders working with Fannie Mae on mortgages can use a new feature in the Fannie Mae Desktop Underwriting Program that includes rent payments in an applicant’s credit review process. mortgage.

Typically, a lender will consider the credit report as well as the FICO score when assessing whether an applicant can get a loan. With this new feature, Fannie Mae can let the loan officer know if a borrower could benefit from a rent payment review, said Rachel O’Grady, spokesperson for Fannie Mae.

Credit history is an important way to gauge a buyer’s ability to make a mortgage payment, but potential first-time homebuyers are at a disadvantage if rent payments don’t show up on their credit reports, O says. ‘Grady. “According to Fannie Mae’s research for first-time homebuyers, lenders looking at their constant rent payments can make the difference between them qualifying and not qualifying for a mortgage.”

Ron Haynie, senior vice president of housing finance policy for Independent Community Bankers of America, agrees that the history of rent payments is a good indicator of the likelihood of a mortgage payment.

“Lenders have always tried to get a rental reference from the consumer landlord. While they were helpful in the underwriting process, most of these written references didn’t provide a lot of detail and there was no way to be sure they were even accurate, ”says Haynie. “What’s different with the new Fannie Mae product is that they use actual payment data from the consumer’s 12-month bank account to verify rent payment on time.”

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How can you obtain rent payment consideration?

Fannie Mae will advise lenders of the possibility of considering rent payments when they review applications, but it is also a good idea to ask if your lender is participating in the program when you apply for a mortgage.

“Lenders Fannie Mae spoke to on this topic were excited about this opportunity to help underserved borrowers,” O’Grady said. “If lenders embrace this new feature, we believe other industry players will follow suit, allowing more credit-eligible first-time buyers to qualify for a conventional mortgage. ”

To qualify, borrowers will need to:

– Be a first-time buyer, that is to say that you have not owned a house during the past three years.

– Meet Fannie Mae’s requirements, which include a FICO score of at least 620 for fixed rate mortgages; an acceptable down payment (at least 3%, depending on the loan product); and a sufficient debt-to-income ratio.

– Perform 12 months of identifiable rents in the payment history of a bank account. Only a positive history of payments – not missed or late – will be taken into account.

Using rent payment data “should help many first-time homebuyers, as rent payments are probably a consumer’s biggest monthly expense,” says Haynie.

Fannie Mae does not yet intend to include additional payment history, such as utility payments.

“We believe this improvement is an essential first step in ensuring that tenants are able to obtain good credit based on timely rent payments and will contribute to a better and fairer housing market for all,” said O’Grady said.

[Read: A Checklist for First-Time Homebuyers]

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