In a move to boost homeownership possibilities for first-time buyers, Freddie Mac announced that it will consider on-time rent payments as criteria for its loan purchase decisions.
Beginning July 10, the government-sponsored enterprise (GSE) will have this functionality integrated into its Loan Product Advisor (LPA) automated underwriting system. To assess purchase eligibility, mortgage lenders and brokers will be able to secure borrower permission and submit bank account data so that LPA can identify 12 months of on-time rent payments.
“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.”
“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,” company president Mike Hutchins added. “Our enterprisewide 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.”
Bank account data will be acquired via designated third-party service providers through the same automated process already used by LPA to verify assets, income and employment. The process can identify rent payments made through paper checks, direct electronic bank transactions or payments through an app such as PayPal, Venmo or Zelle.
Adding rent payments to its underwriting system is the latest move by Freddie to loop rental histories into its credit evaluation standards. In November 2021, the GSE encouraged operators of Freddie-backed multifamily properties to report on-time rental payments by their tenants to Equifax, Experian and Transunion. This move reportedly resulted in the establishment of 15,000 new credit scores and 67% of renters with an existing credit score seeing an increase.