{"id":5489,"date":"2021-08-24T15:07:11","date_gmt":"2021-08-24T20:07:11","guid":{"rendered":"https:\/\/nwfl4sale.com\/on-time-rent-and-mortgage-approvals-heres-how-it-works\/"},"modified":"2021-08-24T15:07:11","modified_gmt":"2021-08-24T20:07:11","slug":"on-time-rent-and-mortgage-approvals-heres-how-it-works","status":"publish","type":"post","link":"https:\/\/nwfl4sale.com\/on-time-rent-and-mortgage-approvals-heres-how-it-works\/","title":{"rendered":"On-Time Rent and Mortgage Approvals: Here\u2019s How It Works"},"content":{"rendered":"
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Thanks to new technology, Fannie Mae lenders can check prospective borrowers\u2019 bank statements (with permission) to verify rent-payment history starting Sept. 18. Freddie Mac plans to follow suit soon. Advocates say rent history is a better gauge of reliability than FICO scores.<\/span><\/span><\/p>\n<\/div>\n NEW YORK \u2013 With a high-paying job as an environmental engineer for a shipbuilding company, Nicole Lawrence figured snagging a mortgage and fulfilling her dream of buying a home would be a piece of cake.<\/span><\/span><\/p>\n But when she applied for a mortgage early this year, she didn\u2019t qualify. Her ex-husband had fallen behind on debts he owed but the couple legally shared, such as car payments and medical bills. That lowered her credit score.<\/span><\/span><\/p>\n \u201cDevastated,\u201d Lawrence, who lives in Virginia Beach, Virginia, with her two kids, said of how she took the news. \u201cI have a great job, I make a great salary. \u2026 I was very disappointed.\u201d<\/span><\/span><\/p>\n But that sort of financial curveball could soon end for people like Lawrence. An announcement last week by mortgage giant Fannie Mae that it would consider on-time rent payment history as part of mortgage approvals could allow her, along with many other aspiring homebuyers with spotty or insufficient credit reports, to still get home loans.<\/span><\/span><\/p>\n Lawrence, 39, who divorced in 2019, has been paying rent on a three-bedroom condo for more than a year. \u201cIf this could possibly help us (buy a house) \u2026 I think that is excellent news.\u201d<\/span><\/span><\/p>\n Until now, credit records generally haven\u2019t factored in rent payments because few landlords provide the information to credit bureaus, and some bureaus aren\u2019t technically set up to include it, says Malloy Evans, executive vice president of Fannie Mae. The rental data is on the reports of just 5% of renters.<\/span><\/span><\/p>\n But new technology is allowing Fannie Mae to check rent payment histories electronically through bank statements, with the borrower\u2019s permission. The new policy takes effect Sept. 18. Freddie Mac says it\u2019s working to include rent payments in its mortgage reviews as well.<\/span><\/span><\/p>\n Consumer advocates say rent payment is likely the best indicator of whether a homeowner will default on a mortgage \u2013 far more accurate than FICO scores, which rely on transactions such as credit card and car payments.<\/span><\/span><\/p>\n \u201cIt seems obvious that if someone is paying rent consistently, it\u2019s likely they could and would pay their mortgage consistently, too,\u201d Fannie Mae CEO Hugh Frater said when the company made the announcement.<\/span><\/span><\/p>\n Fannie Mae and Freddie Mac don\u2019t provide mortgages directly to homebuyers. Rather, the government-sponsored enterprises buy the loans from banks and other lenders and sell them to investors. But if their automated underwriting systems determine that a homebuyer is eligible for a mortgage that Fannie and Freddie would buy, lenders generally approve them. Fannie and Freddie purchase about 60% of U.S. mortgages, according to the Federal Housing Finance Agency.<\/span><\/span><\/p>\n The new policy is expected to aid first-time homebuyers, including many low- to middle-income borrowers, who are often denied mortgages because they have scant credit histories. About 20% of the U.S. population has a skimpy credit record, and Black and Hispanic people fall disproportionately in that group, Fannie says.<\/span><\/span><\/p>\n \u201cWe\u2019re looking for a way to really provide more inclusive access to mortgages,\u201d Evans says.<\/span><\/span><\/p>\n In a recent sampling of mortgage applicants who had not owned a home the past three years and were rejected by Fannie\u2019s underwriting system, 17% could have been approved if rent payment histories were included, the company says.<\/span><\/span><\/p>\n Lawrence, the Virginia Beach resident, says buying a home would signify \u201cindependence and a fresh start\u201d after her divorce. She adds it would allow her to build wealth instead of burning cash on rent every month.<\/span><\/span><\/p>\n Lakisha Williams, a Redfin real estate broker in Hampton Roads, Virginia, says that while some of her Black clients don\u2019t have the money to buy a house, many can\u2019t get a mortgage simply because they \u201cdon\u2019t know how to play the FICO game.\u201d<\/span><\/span><\/p>\n \u201cThese people have great income, a solid job, but their credit scores\u201d are low or their records are skimpy because they never sought credit cards or they paid for cars with cash, Williams says. \u201cThey just don\u2019t know what they need to have.\u201d<\/span><\/span><\/p>\n A disproportionate share of Black wealth is in homeownership, according to the Urban Institute. Yet only about 45% of African Americans owned homes in the second quarter, compared with about 74% of white Americans, Census Bureau figures show. And while the housing market has boomed during the COVID-19 pandemic, many aspiring first-time buyers have been boxed out.<\/span><\/span><\/p>\n Here\u2019s how Fannie\u2019s new setup will work: If the company\u2019s automated system determines that a mortgage isn\u2019t eligible to be purchased, it will check whether a 12-month history of on-time rental payments would change that decision, according to an analysis by the Urban Institute, which conducts economic and social policy research. If so, Fannie will tell the lender, which can then ask the borrower for permission to examine their bank statements.<\/span><\/span><\/p>\n Assuming the borrower agrees, the lender will order a report from a Fannie-approved technology vendor that will check the bank statements for rent payments made by check or automatic debit. If the rental history matches the amounts on the borrower\u2019s application, the loan will be declared eligible for sale to Fannie Mae.<\/span><\/span><\/p>\n At the same time, missed or inconsistent rental payments will not hurt their ability to get a mortgage, Fannie says.<\/span><\/span><\/p>\n Evans says he expects adoption of the new policy \u201cto be modest at first as consumers understand the opportunity and get comfortable being able to provide their permission\u201d to access their bank statements.<\/span><\/span><\/p>\n And while hundreds of lenders work with technology vendors, most do not, according to Fannie Mae and the Urban Institute. Banks and other lenders must establish those ties.<\/span><\/span><\/p>\nHow rent payment history works<\/span><\/span><\/h3>\n