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Sunday, September 26, 2021

Always Pay the Rent? It May Help Your Mortgage Application.


“While credit history is an important factor in determining a borrower’s ability to make mortgage payments, building credit in the United States is not an equitable endeavour,” said Hugh Frater, CEO of Fannie Mae, in a blog post.

As a result, rent should be considered. However, according to FICO, which uses credit report data to build scoring systems that are already used in mortgage underwriting, only 0.3 percent of the 80 million or so adults who live in rental housing have any mention of rent in their credit files.

How is this possible? I wanted to speak with the three major credit bureaus, Equifax, Experian, and TransUnion, about renters. Equifax and TransUnion did not respond, and Experian sent a statement instead of an interview. As is often the case when I inquire about their activities, my inquiry ended up at their industry association, despite the fact that I had not asked to speak with anyone there.

The Consumer Data Industry Association, led by Francis Creighton, expressed surprise that, according to FICO, information on rent payments made up less than 1% of the data that businesses and others sent to the bureaus.

“It’s a huge problem,” he said. “We must have that information on file.”

However, landlords — including hundreds of thousands of people who own an apartment here or a three-flat there — would have to hand it over for the credit bureaus to obtain it.

“They have no incentive to do it,” said Laurie Goodman, the Urban Institute’s vice president of housing finance policy. Only if everyone contributes will it be worthwhile, because landlords will be able to use the new data set to screen tenants. And no one is currently contributing anything.

Given that credit bureaus do not have the rental data that Fannie Mae and others require, Fannie devised a somewhat convoluted workaround involving a “desktop underwriter” validation engine and orders for “asset verification.”

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