FHFA Underwriting Change Causes Mixed Feelings

September 14, 2021
Some industry experts fear that including rental history in the underwriting process will lead to risky credit decisions.


The mortgage industry had mixed feelings about the Federal Housing Finance Agency’s move to count positive rental history in Fannie Mae’s underwriting process. Advocates for affordable housing cheered the move. Lenders appeared to be supportive of the change. But some in the mortgage industry fear it is an irresponsible loosening of credit restrictions. Starting Sept. 18, Fannie Mae will count 12 months of positive rental payment history in its Desktop Underwriter program. To be eligible, borrowers must be first-time homebuyers, pay a monthly rent of at least $300, purchase the house as a primary residence, and consent to sharing 12 months of their bank statement history. Lenders must obtain a verification of asset report from one of Fannie Mae’s approved vendors to include with the borrower’s file. The inclusion of the rental payment history can only work in a borrower’s favor. Phil Denfeld, chief operating officer of Fairfax, Virginia-based First Heritage Mortgage, said he is in favor of taking into account on-time rental payments. But, he cautioned, “It should not be at the exclusion of not factoring in, in some way, the negative stuff. If there’s one or two missed payments, great. If there’s a serious pattern, how will the American public feel when a bunch of people are defaulting on their loans?” Others voiced the same concerns. The FHFA’s policy, however, is not up for debate. And the change seems to be just the latest sign that the Biden administration is not afraid of using the GSEs as leverage to advance its housing agenda. “It was important to us to look for responsible ways to provide access for folks who have been traditionally boxed out of the ability to access homeownership,” said Malloy Evans, Fannie Mae’s head of single-family. Evans said that the question of whether to ding borrowers for missed or late payments has more to do with the underlying data being used. It’s not evident from a bank statement whether a rent payment was late or not. Likewise, if a rental payment is missing in the asset verification report, it does not necessarily indicate payment was not made, Evans said. From Fannie Mae’s perspective, the impact the change could have is potentially dramatic — 17% of borrowers who were recently declined would have been approved, had this policy been in place. “It’s not relaxing our credit standards, it’s looking for reliable indicators of the borrower being able to meet our credit standards,” said Evans.

Source: HousingWire