Making homeownership more attainable - Fannie Mae updates its underwriting process

Updated: Sep 20

In a recent press release on August 11, 2021, Fannie Mae announced “the company will unveil a new feature in its automated underwriting system to include consumers' rent payments in the mortgage credit evaluation process.” It further went on to say that starting September 18, 2021, with the applicant’s permission, “Fannie Mae’s Desktop Underwriter® (DU®) will…automatically identify recurring rent payments in the applicant’s bank statement date to deliver a more inclusive credit assessment…for those who may have limited credit history but a strong rent payment history.”

It is important to note that, while positive recurring rent payments will count toward the evaluation process, negative or missed payment records will not negatively impact the applicant’s eligibility. According to an article from USA Today, advocates for consumers argue that rent payments are likely great indicators of whether a homeowner will default on a mortgage – more so than FICO scores that are reliant on credit card and car payments. – Paul Davidson, USA TODAY

Evaluating credit history is a key contributor in the underwriting process, however few renters today report their rent payments on their credit bureau report. Fannie Mae’s National Housing Survey® found that “Black consumers identify insufficient credit score or credit history as their single biggest obstacle to getting a mortgage…compared to white consumers.”

In fact, according to Fannie Mae, in a sample of applicants who hadn’t been approved through Fannie Mae’s underwriting system, 17% would have been approved had rent payment history been factored in.

This new system of automated underwriting could go a long way to help those who have little to no credit history. It is yet another way to make housing a more inclusive and equitable market for low-to moderate-income, first-time and minority homebuyers.