Some Renters' Payment History Could Soon Help Them Get a Mortgage
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What is the main topic discussed in this episode?
Here's your money briefing for Thursday, August 12th. I'm J.R. Whalen for The Wall Street Journal. The housing market is booming, with buyers scooping up homes as quickly as they're put up for sale. But many prospective homebuyers, people like renters with modest credit profiles, have been left on the sidelines, unable to get a mortgage. But that could be about to change.
The goal, at least, is to find a fairly easy way where this crucial data point that would tell lenders whether or not loan applicants have been paying their rent on a monthly basis. Essentially, Fannie Mae is making it easier to do that for the lenders.
How will Fannie Mae start using renters’ bank data to verify rent payments for mortgages?
Coming up, we'll talk with our consumer credit reporter, Anna Maria Andriotis, about an upcoming program that aims to make it easier to qualify for a federally backed mortgage. That's after the break.
Lending companies use all sorts of data from consumers' credit reports, things like car payments and credit card bills, when considering whether to approve them for a mortgage. But that data doesn't include one of their biggest monthly obligations, their rent.
What technical method will lenders use to identify recurring rent payments in bank accounts?
For some prospective homebuyers, that's about to change. Starting next month, Fannie Mae will make it easier to include rent payments as a way to gauge their ability to pay a mortgage. WSJ consumer credit reporter Anna Maria Andriotis has been looking over the details of the program, and she joins us now to talk about it. Anna Maria, thanks for being on the show.
Great to be speaking with you.
So tell me, Anna Maria, how would this actually work? How would lenders get the rent payments data?
So Fannie Mae's underwriting tool will help lenders to identify rent payments within people's bank accounts.
Why hasn't rent payment history been widely used in mortgage underwriting before?
So the idea is basically that there will be an easy way to pinpoint what recurring payments coming out of a person's bank account is the rent payments that the loan applicant has been making. So the point here is to basically find a fairly easy, the goal at least is to find a fairly easy way where this crucial data point that would tell lenders whether or not loan applicants have been paying their rent on a monthly basis, essentially Fannie Mae is making it easier to do that for the lenders.
Okay, so applicants grant access to their bank info. Sounds pretty straightforward. So why hasn't this been done up to now?
So rent has been very tricky with regards to using rental payment information as a way to underwrite consumers for loans, including mortgages. So Fannie Mae doesn't require that lenders consider rent history. If a borrower has a credit report and credit score, that meet the company's criteria.
Who stands to benefit most from adding rent payments to mortgage underwriting?
But the issue here has long been the fact that credit reports often do not include rent payments. And that essentially means that since they're not in credit reports, they're not going to be reflected in credit scores because credit scores are based off of the information in people's credit reports. There's kind of been this sort of ongoing issue here where The problem starts with the rent data not appearing in most people's, most renters' credit reports. Some landlords do report, but most do not report that payment data, especially the positive payment data that would show that somebody has been paying on time on an ongoing basis. So what's happening at Fannie Mae is part of a broader effort, not just within the mortgage sector, but elsewhere in consumer lending to essentially pinpoint data that is left out by credit reports and credit scores.
that could essentially help lenders to better determine whether people are a safe bet to extend credit to. And so with rent, as Fannie Mae's CEO told us, in some markets, it's just as expensive to rent as it is to own. And so it should be equally and fairly considered in people's ability to pay the mortgage. I mean, if you have a large rental payment that you need to make, and you're making it, why shouldn't that be factored in to help a consumer qualify for a mortgage?
Who's likely to benefit the most from this change at Fannie Mae?
The people who are more likely to benefit from this are people who have thin credit histories, a limited history of borrowing, but who have been making their
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:05–0:40
2
How will Fannie Mae start using renters’ bank data to verify rent payments for mortgages?
0:40–1:09
3
What technical method will lenders use to identify recurring rent payments in bank accounts?
1:09–1:41
4
Why hasn't rent payment history been widely used in mortgage underwriting before?
1:41–2:48
5
Who stands to benefit most from adding rent payments to mortgage underwriting?
2:48–4:30
6
How will cash or pandemic-related gaps in rent payments affect mortgage eligibility?
4:30–5:39
7
How could rent-based underwriting change competition for first-time homebuyers?
5:39–7:29
8
How are banks and lenders increasingly using bank-account data beyond rent to assess creditworthiness?
7:29–11:34
Speakers
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