Datalinx clients have always known that reporting consistently on-time rent payments to the credit bureaus can have an incredibly positive impact on a consumer’s borrowing power. Now it seems that Fannie Mae — the nation’s leading source of mortgage financing — has also realized the power of rent payment reporting, and it could be a game-changer for first-time homebuyers.
Introducing “positive rent payment history”
In September 2021, Fannie Mae announced that it would be adding a new “positive rent payment history” feature to its Desktop Underwriter® (DU®) software. The feature allows the program to use verification of asset (VOA) reports to identify and factor in recurring rent payments when assessing a borrower’s credit.
Rent payments traditionally will not appear on consumer credit reports without a third-party reporting service like Datalinx — and Fannie Mae’s new feature won’t change that. However, through VOA reports (like bank statements), potential borrowers can prove to a mortgage lender that they have made their recurring rent payments on time and consistently. Fannie Mae’s DU software will also automatically identify rent payments in an applicant’s bank statement data, but only with the applicant’s permission.
Like the major credit bureaus’ recent addition of buy now, pay later (BNPL) loans to their credit reporting data, Fannie Mae’s new program was created to promote a more inclusive credit evaluation.
“This is one step in a series of efforts Fannie Mae is exploring to help expand sustainable homeownership opportunities for underserved populations and support a more equitable housing finance system,” the Fannie Mae website reads.
How it works
In order for a lender to include rent payment history for consideration in an application for a Fannie Mae mortgage, the consumer must meet the following eligibility criteria:
- Be a first-time homebuyer purchasing a principal residence,
- Have a credit score of at least 620 (nontraditional credit is not permitted),
- Have been renting for at least 12 months,
- Have rent payments of $300 or more per month, and
- Have bank accounts that document the most recent 12 months of recurring rent payments.
In addition, loans which use a consumer’s average median credit score in its credit evaluations require a minimum credit score of at least 620 before the positive rent payment history can be used. The use of positive rent payment history for consideration in a mortgage application will not affect the consumer’s credit report or score, Fannie Mae’s site adds.
Of course, if a property owner or manager uses a company like Datalinx to report rental payments, that information would be included in the borrower’s credit report data and considered in credit score determination and evaluation. Fannie Mae estimates that fewer than 5% of renters’ housing payments are reported to the bureaus today.
DU details
Fannie Mae’s DU software’s automatic verification system can identify rent payments made by check or electronically, such as those made through PayPal, Venmo, Zelle, or a property management company’s payment portal. If a renter pays from multiple bank accounts, DU can combine that data to compare with the total rent amount reported in the application. The software will not, however, detect late payments from the data provided.
Lastly, as the name “positive rent payment history” name implies, there can be no negative impact to borrowers who choose it. If some rent payments are missing from the VOA, they will not count against the applicant. As Fannie Mae’s site explains, “DU cannot determine if payments were missed or if the borrower paid through a different method, such as cash, for a given month.
Your renters could already be benefiting from their positive rent payment histories with your firm if you were a Datalinx data furnisher! Reach out to us today to get started.
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