Freddie Mac to Include On-Time Rent in Underwriting
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On-time rental payments to be included in Freddie Mac's system starting July 10
June 30, 2022
By R. Michael Brown
Freddie Mac (OTCQB: FMCC) announced that it will increase homeownership opportunities for first-time homebuyers by considering on-time rent payments as part of the company's loan purchase decisions.
"Finally!" said Dawn Pfaff, President of My State MLS. "If you can afford pay a certain amount for rent and you are making that payment every month, then that should be considered in the underwriting process. This will help a lot of first time home buyers get into a home."
Beginning July 10, 2022, this automated functionality will be available to mortgage lenders nationwide through Freddie Mac Loan Product Advisor® (LPA), the company's automated underwriting system.
"This extremely important initiative will help many renters move closer to achieving the dream of homeownership," said Michael DeVito, CEO of Freddie Mac, in a news release. "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 for inclusion in the tool's assessment of 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.
These automated capabilities provide greater efficiencies to lenders and allows them to deliver a better borrower experience while continuing to meet Freddie Mac's strong credit underwriting standards.
"One of the first steps to purchasing a home is a positive credit history, and Freddie Mac is committed to helping consumers achieve that goal," said Mike Hutchins, Freddie Mac President. "Our enterprise-wide approach already includes programs to help consumers understand credit and initiatives to assist renters with building and improving their credit scores. Factoring on-time rent payments into our automated underwriting system will help create even more opportunity for families across the nation."
Last year, Freddie Mac announced an initiative to help renters build credit by encouraging operators of Freddie Mac-financed multifamily properties securing its loans to report on-time rental payments to the three major credit-reporting bureaus. Since Freddie Mac began this initiative, 70,000 households across more than 816 multifamily properties have been enrolled. More than 15,000 new credit scores have been established, and 67% of renters with an existing credit score saw their scores increase.
Additionally, the Freddie Mac CreditSmart® financial capability curriculum helps consumers learn about the importance of building, maintaining and using credit so they can take the reins on their financial futures. Over the past two decades, more than five million consumers at various life stages have benefitted from CreditSmart's financial education, which is available at no cost.
Additional requirements for submitting rent payment data to LPA will be announced in an upcoming July Single-Family Seller/Servicer Guide Bulletin. Initial designated service providers supporting Freddie Mac's automated rent payment capability include Blend, Finicity (a Mastercard Company), FormFree and PointServ. Freddie Mac's privacy policy is available online.
In addition to this great news, My State MLS has recently launched a Financial Assistance - State Directory so renters and first-time home buyers may find some relief.
Pfaff said, "We've created a state-by-state USA directory of federal, state, and local financial assistance programs to help residents that need information or a helping-hand to stay in the place they are living in, or find and pay for a new place to live.Debt relief and down payment financial assistance programs are lending a hand to millions of Americans to get a residence."
Whether you rent or own your current place to live, click on the state you reside in and access direct links to the financial assistance programs available in your area. Real estate brokers and agents are welcome to use the directory to help their clients find financial assistance.
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