Freddie Mac to Consider Rent Payments in Loan Purchase Decisions
Written By: Joel Palmer, Op-Ed Writer
Freddie Mac announced that it will consider on-time rent payments as part of its mortgage loan purchase decisions.
The option will be available on July 10 through the Freddie Mac Loan Product Advisor (LPA) automated underwriting system.
Freddie said the move is designed to increase homeownership opportunities for first-time buyers. The company’s Equitable Housing Finance Plan mandated by the Federal Housing Finance Agency (FHFA) includes using “alternative credit data sources” in mortgage underwriting.
“This extremely important initiative will help many renters move closer to achieving the dream of homeownership,” said Michael DeVito, CEO of Freddie Mac. “Millions of American adults lack a credit score or have limited credit history. By factoring in a borrower’s responsible rent payment history into our automated underwriting system, we can help make home possible for more qualified renters, particularly in underserved communities.”
With the borrower’s permission, lenders and brokers can submit bank account data for LPA to identify 12 months of on-time rent payments to assess purchase eligibility. The bank account data is obtained from designated third-party service providers using the same automated process used to verify assets, income and employment through LPA asset and income modeler (AIM). Eligible rent payment data includes check, electronic transactions or digital payments made through Zelle, Venmo or PayPal.
Last year, Freddie Mac launched an initiative to help renters build credit by encouraging operators of its financed multifamily properties to report on-time rental payments to the three major credit-reporting bureaus. Freddie said the program has enrolled 70,000 households across more than 816 multifamily properties. More than 15,000 new credit scores have been established, and 67 percent of renters with an existing credit score saw their scores increase.
Additional requirements for submitting rent payment data to LPA will be announced in an upcoming July Single-Family Seller/Servicer Guide Bulletin.
In other mortgage industry news, FHFA said last week it will “explore alternatives to ensure the long-term viability of UMBS,” in response to criticism of a new fee that took effect July 1.
Fannie Mae and Freddie Mac announced a new upfront fee of 50 basis points on Uniform Mortgage-Backed Securities (UMBS) to enable each enterprise to secure the collateral of the other enterprise in these commingled securities.
It was needed, according to FHFA, to accommodate the increased capital requirements in the recently finalized Enterprise Regulatory Capital Framework (ERCF). However, it has drawn heavy criticism as many in the industry fear the fee threatens the viability of the single security.
FHFA’s most recent statement said it is retaining the fee despite the feedback received. However, it “will explore alternatives to ensure the long-term viability of UMBS, including conducting a review of the ERCF in the near-term to ensure the ERCF appropriately reflects the risks of commingled securities.”
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
