Fannie Mae just gave renters aspiring to home ownership a big boost

First time buyers who’ve always stayed current on their rent might have a better chance of securing a mortgage now. That’s because Fannie Mae is now allowing lenders to factor in an applicant’s rental payment history as part of the mortgage underwriting process for the first time.

The move was announced by the Federal Housing Finance Agency, which said it may help provide a boost to those with lower credit scores.

One of the problems hampering lifetime renters is that their credit reports typically don’t factor in their rental payment history. That’s because landlords don’t report that data to credit reporting firms. But it means renters who always pay in a timely fashion don’t get the credit they deserve for it.

Sandra L. Thompson, acting director of the FHFA, justified the decision to allow lenders to factor in people’s rental payment history, saying that for many households, “rent is the single largest monthly expense.”

“There is absolutely no reason timely payment of monthly housing expenses shouldn't be included in underwriting calculations,” she said. “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."

Fannie Mae will start factoring in people’s rental payment histories from Sept. 18, the FHFA said. To do so, it will work with an unnamed asset verification technology firm to identify records that show consistent rental payments over the previous 12 months.

The move was lauded by National Association of Realtors President Charlie Oppler, who said that expanding credit opportunities through alternative data is one of his organization’s top priorities. He added that the announcement will likely have implications for other lenders too.

“Fannie Mae’s adoption of rent data for underwriting is crucial as rents closely track mortgage payments,” he said. “Furthermore, Fannie Mae has the reach to touch mot consumers and as an industry leader, other lenders will follow suit.”