Fannie Mae Eases Underwriting Calculation

Blog posted On August 17, 2021

On Wednesday, August 11^th, the Federal Housing Finance Agency (FHFA) announced that positive rental payment history will be accounted for during Fannie Mae’s underwriting process. Not only will on-time rental payments help potential homeowners but missed rental payments will no longer prevent them from getting a mortgage. The change is effective immediately and should help current renters have greater access to homeownership.

Sandra Thompson, acting director of the FHFA, noted that rent is often the largest expense for most families, and a proven history of on-time rent payments should be considered when applying for a mortgage. “For many households, rent is the single largest monthly expense,” said Thompson. “There is absolutely no reason timely payment of monthly housing expenses shouldn’t be included in underwriting calculations,” The change should help more renters become homeowners. “With this update, Fannie Mae is taking another step toward understanding how rental payments can more broadly be included in a credit assessment, providing an additional opportunity for renters to achieve the dream of sustainable homeownership,” explained Thompson.

During her time as acting director of the FHFA, Thompson has made her intentions to expand homeownership access clear. Specifically, expanding credit to low income and minority communities is one of Thompson’s top priorities. The Biden Administration has also noticeably supported racial equity in homeownership and made steps to reduce the racial homeownership gap.

In July, the Housing and Urban Development (HUD) Secretary Marcia Fudge along with former United Nations Ambassador Susan Rice started to evaluate the potential racial bias in the home buying appraisal process. Additionally, legislation which would provide down payment assistance to borrowers of color, is working its way through Congress now.

Though these processes will take time to have a significant effect on the homeownership gap, the new underwriting calculation will have immediate impact. In a recent study, Fannie Mae found that 17% of rejected buyer applications would have been approved if their rental history had been considered. Prior to the change, fewer than 5% of renters had rent payments included in their credit history. Without these payments included in their history, many potential home buyers (disproportionately Black and Hispanic buyers) have more limited access to homeownership because they have less of an established credit history. Nearly 30% of Black consumers say that the biggest obstacle to buying a home isn’t the down payment, but insufficient credit history. Comparatively, only 18% of white consumers find this to be the hardest part of getting a mortgage. 

With the new underwriting changing, roughly 20% of the U.S. population will have greater access to homeownership. If you think that you previously wouldn’t have qualified for a mortgage because of an insufficient credit history, contact us today!

Sources: HousingWire