Millions of lessors with little or no credit records have long been locked out of the American dream of owning a home. For some, it’s about to change for the better.
Starting September 18, mortgage giant Fannie Mae will review the latest 12-month rent payment history when lenders run an automated credit check system. Ambitious homeowners must grant Fanny permission to look up rent payment records from checking accounts or electronic services such as PayPal and Venmo.
Under the current system, landlords do not report rent payments to the three major credit rating agencies and are not included in traditional consumer credit score calculations. However, mortgage payments are included. Proponents have long fought to change that gap. It’s a great record of responsibly paying rent on time and can effectively lock out first-time buyers.
“For many households, rent is the single largest monthly cost. There is absolutely no reason why timely payments of monthly housing costs should not be included. [mortgage] Underwriting calculation “. Sandra L. Thompson, Deputy Director of the Federal Housing Finance Agency, Fanny’s regulator, said in a statement last month.
Fannie Mae estimates that about 17% of applicants over the last three years are eligible for a mortgage, given their rent history. It may not seem like much, but it includes the hordes of Americans most hurt by discriminatory housing policies dating back more than a century.
“Powerful additional tools”
“This is a very powerful addition to helping people left behind in this part of the market,” Cecilia Isaac, chief lender at One United Bank, the largest black-owned bank in the United States, told CBS Money Watch.
Fannie Mae CEO Hugh Freighter said in a recent blog post that he intentionally aims to narrow the racial wealth gap. According to the census at the end of June, about 45% of black Americans owned a home in the second quarter, compared to 74% of white Americans. that is,..
Still, according to a recent Urban Institute study, a record of rent payments on time could be a good credit indicator of someone paying a mortgage on time. Junchu, a co-author of the Urban Institute’s research and a clinical assistant professor at the University of Indiana at Bloomington, said that those who pay their monthly mortgages within a one-year deadline have traditionally low credit scores. Including, it states that there is a possibility of default of about 2.8%. ..
“Currently using the new Fannie Mae system, [potential borrowers] I have a second chance. And it shows that the probability of default is actually very low. So this is really good to take into account rent payments. “
Another important feature: Consumers do not lose their chances of buying a home if they miss or delay payment. Fannie Mae will only use the information if it increases creditworthiness and the likelihood of personal approval, as announced in August. Future homeowners can reapply if their credit score improves and they don’t have to worry about the bad things tied to previous rent checks.
“If you go through this process and the results of your rental history look are not positive, you won’t lose your ability to qualify on a regular basis. They won’t use it for you, and that’s what consumers know. Is important, “said Isaac of One United.
Close the wealth gap
In total, about 45 million Americans have little or limited credit history. It makes it difficult to apply for a mortgage, I found a 2015 report from the Consumer Financial Protection Bureau. Black and Hispanic applicants are likely to have little or no history, contributing to the country’s large wealth gap.
“Home ownership builds wealth in the sense that it has assets that are valued over time. It is used as a basis for retaining, transferring to relatives, and moving up. “Issac said,” Equity building in the house makes it possible to close a significant amount of wealth gaps. “
For Jenn Gummel, a real estate agent in Dover, Delaware, the change in rental income will not be immediate. Most first-time buyers she meets ask if she can include rental history, but are surprised to find that she can’t, she told CBS MoneyWatch.
“Almost all first-time buyers told me,’I really want the underwriting to take into account my rent payment history.’ Well, that’s what they actually say. No, but that’s what they’re trying to say. “
Gummel recalls a recent client in New York City who was denied a mortgage application.
“They were paying an insane amount of rent and their rent in New York. [in Delaware] I fell a lot. If they could use their rent payment history, they would probably have been able to get a mortgage, “Gammel said.
Fanny itself does not lend directly to the borrower. Rather, buy a mortgage from a lender, including a bank. Fannie Mae and her cousin Freddie Mac, known as the Government-Sponsored Agency, were part of a program created to help promote home ownership and build wealth in the decades following the Great Depression. Mortgages held by GSE are guaranteed by the federal government and also help protect lenders from financial collapse.
GSE owns more than 60% of all US mortgages. Therefore, if Fannie Mae says the loan is not a good risk, the bank will usually refuse the application because the resulting mortgage cannot be sold to Fannie.
Experian, TransUnion, Equifax
These mortgage valuations are tied to credit scores like those used by three major credit agencies: Experian, TransUnion and Equifax. Mortgage underwriters use FICO scores edited by Fair Isaac Corporation. According to experts, the lowest score for a traditional 30-year mortgage at a bank is usually 620. However, people with a score of less than 700 tend to be scrutinized.
Urban Institute Jun and Gammel said rent checks are optional, so consumers may want to postpone if the score exceeds about 700. Without it, it is likely to be approved.
“Obviously, if they have a credit score of 760 or 700, I don’t think they really need it [the check]Gammel told CBS Money Watch. “It’s really people who are right under or above the bar, just to give them a little boost.”
Mortgage giant Fannie Mae considers paying rent on time with mortgage approval
Source link Mortgage giant Fannie Mae considers paying rent on time with mortgage approval