Fannie Mae’s recent decision to utilize rent payment history in mortgage underwriting will help expand the credit-profiles of millions of first-time homebuyers. Because landlords do not report rent payments to the bureaus, many historically disadvantaged populations have had difficulty obtaining the American dream of homeownership. However, on September 18th, Fannie Mae will take significant steps to change that, when it begins considering 12 months of positive rent payments in its Desktop Underwriter program.
According to Fannie Mae, the impact of this program could be dramatic, noting that 17% of homebuyers previously denied financing would have been approved, had the program been in place.
Here’s how it works: Lenders will submit the mortgage application through Fannie Mae’s Desktop Underwriter in the same manner they do now. If the system concludes the loan is not eligible for sale to Fannie Mae and that the borrower is a first-time homebuyer, it will then evaluate whether a 12-month history of on-time rent-payments would impact the decision. If this is indeed the case, Fannie Mae will notify the lender, and the lender may ask the borrower for permission to view their bank statements.
Once this access is granted, the lender can then order an asset report from a Fannie-approved vendor, such as the Verification of Asset Report, available through Xactus. Using this tool, borrowers can quickly give permission to access 12 months of rental payment data with the click of a button. Once this access is granted, the report is automatically sent to Fannie Mae’s system, where it is assessed whether rental history exists and is consistent with the payment amounts listed on the initial application. If this is the case, the loan will be deemed eligible for sale to Fannie Mae.
Lenders should note that they may not request bank statements directly; the only way to obtain these bank statements is through a Fannie-approved vendor. Banking data is highly confidential, and automated asset verification tools are the safest and most secure option, as the data is pulled straight from the source.
It’s important to note that Fannie’s new policy is designed to provide a boost to the homebuyer’s application, and that the inclusion of rent payment data can only help, not hurt, that application.
Because incorporating rental history into the mortgage approval process will make it easier for underserved communities to get federally backed mortgages, it may also benefit lenders by helping them meet Community Reinvestment Act requirements more easily.
Although many originators may not be prepared to offer borrowers this option on day one of Fannie’s policy, it’s clear that automated verification of asset reports are an increasingly popular option among lenders and deliver a secure solution to providing detailed rent payment history in this particular case. It’s all part of a greater effort to solve one of the most glaring issues of homeownership: If you can pay your rent, shouldn’t that count for something when it comes to buying your own home?
