Freddie Mac announced on Wednesday that on-time lease payments will be included in its underwriting system. The government-sponsored firm said it hoped to entice “responsible” tenants to take up home ownership.
According to Freddie, this option will be available from July 10 and will allow mortgage lenders to submit a borrower’s bank account data that shows a 12-month streak of on-time rent payments to its automated underwriting system.
Michael DeVito, CEO of Freddie Mac, said in a statement that millions of potential borrowers have been barred from home ownership because they lack a credit score or have a limited credit history.
“By factoring a borrower‘s responsible rent payment history into our automated underwriting system, we can help make the home possible for qualified tenants, especially in underserved communities,” DeVito said.
Freddie said in his announcement that a borrower’s bank account data — with the borrower’s permission — can be pulled from apps like Zelle, Venmo Where PayPal. The government-sponsored firm added that additional requirements for submitting rent payment data to its underwriting system will be announced in July.
Freddie Mac is considering different ways to incorporate one-time lease payments to help borrowers qualify for a mortgage.
In November 2021, Freddie Mac announced that he wanted to encourage multi-family landlords to report positive rent payments to credit bureaus to give tenants a better chance of qualifying for a mortgage.
The government-sponsored firm said at the time that it would provide closing cost credits on multi-family loans to rental landlords who agree to report rental payments on time via Esusu Financial.
As a result of this initiative, 70,000 households in 816 multi-family properties are enrolled in the program and more than 15,000 credit scores have been established, Freddie said.
Freddie Mac follows in the footsteps of Fannie Maewhich announced in August 2021 that one-time lease payments would factor into its underwriting calculations.
Fannie said for first-time home buyers, a history of consistent rent payments makes a “significant difference” in helping an applicant qualify for a mortgage.
According to his research conducted last year, in a sample of mortgage applicants who were refused a mortgage, 17% could have received an approval if their rent payment history had been taken into account.