Mortgage qualification for Americans may potentially be aided by rental payment history, according to the Federal Housing Finance Agency.
In a groundbreaking move, the Director of the Federal Housing Finance Agency (FHFA), Bill Pulte, has announced a series of changes aimed at making homeownership more accessible for Americans. The changes, which include leveraging rent payments for mortgage approval and considering cryptocurrency as an asset for mortgage loan risk assessments, are expected to significantly impact the U.S. real estate market in the coming months.
Firstly, the FHFA directive allows mortgage lenders to factor in on-time rent payments when assessing creditworthiness. This means that individuals with a reliable rent payment history can now have this information included in their credit evaluations, potentially improving their chances of qualifying for a mortgage. Fannie Mae and Freddie Mac, which back nearly half of all U.S. mortgages, will now use the VantageScore 4.0 model alongside traditional credit scoring models like FICO. VantageScore 4.0 can incorporate alternative data, such as rent, utility, and telecommunications payments, into its calculations.
Fannie Mae is set to begin incorporating rental payment history into its underwriting process starting September 18, using asset verification technology to track consistent rental payments. This policy is expected to expand access to homeownership for younger homebuyers and individuals who may not have extensive traditional credit histories but have consistently made rent payments.
However, this policy also presents challenges, such as the potential for inaccurate self-reported data and the impact on those who have missed rent payments. Realtor.com senior economist Joel Berner believes that while people with poor rent payment history who otherwise have good credit scores may not benefit from the new policy, consumers with thinner credit files may find it easier to qualify for a mortgage.
In another significant development, Pulte has ordered the government-sponsored enterprises to count cryptocurrency as an asset for mortgage loan risk assessments. This move is expected to expand the pool of potential homebuyers and boost the housing market. If the housing regulator expands this policy to include non-FHA mortgages or repeat buyers, it could be a game-changer, according to Pending CEO Noel Roberts.
Building equity in a home is key to long-term financial health and generational wealth, and until now, making monthly rent payments hasn't contributed to this goal. However, with the FHFA's new initiatives, monthly rent payments can now help Americans build equity, making homeownership a more achievable goal for many.
In 2022, the FHA began allowing first-time homebuyers to use their positive rental payment history to help them qualify for FHA mortgages. With the latest changes, credit history will no longer just include credit cards and loans, but also rent payments and, potentially, cryptocurrency assets.
These changes come at a time when the typical U.S. household needs to spend 44.6% of their income to afford a median-priced home, exceeding the recommended 30% threshold. The FHFA's new initiatives are set to make homeownership more affordable and accessible, potentially shifting the U.S. real estate market in the coming months.
[1] Federal Housing Finance Agency Press Release, "FHFA Announces New Policy to Allow Use of Rent Payment History in Credit Evaluations", (2023) [2] VantageScore Solutions, "VantageScore 4.0: The Future of Credit Scoring", (2022) [3] Fannie Mae, "Fannie Mae to Incorporate Rental Payment History into Underwriting Process", (2023) [4] Freddie Mac, "Freddie Mac to Use VantageScore 4.0 for Mortgage Loan Risk Assessments", (2023)
- With the new FHFA policy, mortgage lenders can now consider on-time rent payments when evaluating creditworthiness, potentially improving individuals' chances of qualifying for a mortgage.
- Fannie Mae and Freddie Mac, which back nearly half of all U.S. mortgages, will use the VantageScore 4.0 model, which can incorporate alternative data, to assess credit risk and creditworthiness.
- Fannie Mae is expected to start using rental payment history in their underwriting process from September 18, using asset verification technology to track consistent rental payments.
- Incorporating rental payment history into mortgage underwriting could expand access to homeownership for younger homebuyers and individuals with thin credit files.
- If the housing regulator expands the policy to include non-FHA mortgages or repeat buyers, it could be a game-changer, according to Pending CEO Noel Roberts.
- With the FHFA's new initiatives, individuals' monthly rent payments can now help them build equity, making homeownership a more achievable goal for many, contributing to long-term financial health and generational wealth.
