Milwaukee tenants looking to become homeowners have another tool at their disposal now that Fannie Mae has added rental histories to their automated mortgage underwriting process.
Last week Fannie Mae updated its computerized system include bank records reflecting consistent rent payments. The system, called the Office Underwriter, is used by lenders to assess the creditworthiness of mortgage applicants.
While most landlords report missed rent payments to credit reporting agencies, many do not report consistent rent payments on time. This means that potential homeowners with little or no credit history are unable to take advantage of a successful rental track record to buy a home.
Bethany Sanchez, Senior Equitable Loan Administrator at the Milwaukee Metropolitan Fair Housing Council, said the change – along with other tools – could help narrow the racial gap between Milwaukee owners.
“It could be quite transformative,” she said.
The change is expected to increase access to mortgages
When it comes to predictive tools, rental history is the closest approximation to whether a person is most likely to pay their mortgage, Sanchez said.
“Whether you pay off your Boston Store card or whatever it is might not be as predictive as if you pay your rent on time,” she said.
According to Deon Price, a Housing Acts real estate agent, the change automates what some local lenders were already doing. “I spoke to one of the local lenders that I receive quite a few clients from and they’ve been telling me it’s been their policy for years,” he said.
Although some lenders have regularly integrated borrower rental history, they have been forced to add this payment history manually. The updated automated system will make it easier for lenders.
In a city like Milwaukee, which has significant racial disparities among homeowners, the change should also have an impact on fairness.
“People just assume I could never own a house. It just seems too out of control, out of the realm of possibility, ”Sanchez said. “It helps tenants understand that they might in fact qualify for a mortgage. “
At Acts Housing, Price said he often works with new landlords, most of whom are diligent in paying their rent. Acts Housing is a housing resource center that offers advice to home buyers, real estate brokers and help with home improvement projects.
“The new owners want to make sure that nothing ruins their opportunity to own a home, as a lot of them are tired of renting,” he said.
The problem is particularly acute for black and Latino families, many of whom have little or no credit.
A july report by the Center for Economic Development at the University of Wisconsin-Milwaukee found that Milwaukee has the second lowest black homeownership rate (27.2%) among the 50 largest metropolitan areas in the country.
“There are a lot of black families with strong rental histories,” Price said. “What you lack in credit in terms of credit score, history or whatever, you make up for in rental history. “
Sanchez noted that the change may also positively affect immigrant families who use individual tax identification numbers instead of Social Security numbers when applying for pre-approval of their home loans; either is necessary to prove that the applicant has already paid taxes.
When paired with a separate campaign, the Fair Housing Council works with the Housing Consortium Take root Milwaukee To encourage tenants to become homeowners, Sanchez said Fannie Mae’s update could represent a “game changer.”
“This is going to change the equity landscape,” Sanchez said.
Fannie Mae, officially the Federal National Mortgage Association, was created by Congress during the Great Depression. The public-private “government-backed enterprise” purchases mortgages from financial institutions.
Fannie Mae predicted that this change in her underwriting process will have a “modest impact” on the eligibility of early mortgage applicants, with more gains expected over time.
According to Fannie Mae, 17% of potential buyers whose applications went through Desktop Underwriter and were previously rejected could have been eligible with this added consideration.
Fannie Mae said the change was part of a longer-term goal to ensure rental payment histories are reported to credit bureaus to help more tenants build credit.
Several local banks, including representatives from BMO Harris and PNC Bank, released statements, saying they believe the change is positive.
“This change will create additional opportunities for underserved people and those with low and moderate incomes and will open up new avenues for homeownership for many first-time buyers, which we strongly believe in,” a PNC Bank spokesperson said.
Here’s what you need to know about change
The decision to approve a loan ultimately rests with the lender; in some cases, Fannie Mae purchases such loans to “secure” them, meaning that they are liable for the debt in the event the borrower defaults.
Prospective buyers must have a credit score of at least 620 to expect good rates for home loans.
According to Fannie Mae, rent payments made by check, electronically through a rental management’s payment portal, and through other electronic methods such as Venmo, Paypal and Zelle are all eligible as long as the payments are connected to a bank.
Borrowers will have to give lenders permission to access and verify these bank records when applying for a home loan; documentation of consistent payments should help strengthen your creditworthiness.
If your bank statements show inconsistent or missed payments, however, that history won’t hurt your creditworthiness. You should always be aware that sometimes landlords report missed rent payments to credit bureaus, which means they may already be part of your credit history.
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