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New Freddie Mac program to help renters build credit

Freddie Mac is introducing a program to help renters build their credit history. The new program incentivizes apartment operators to report on-time rent payments through technology provided by Esusu Financial. (J. Lawler Duggan for The Washington Post)

Your credit report is a key factor in your ability to qualify for a mortgage.

Yet for most renters, the biggest bill they pay each month doesn’t appear on their credit report. If you pay your rent on time every month, that naturally seems to indicate you’re likely to pay your mortgage on time, too. But, according to research from Freddie Mac, less than 10 percent of renters have their rent payments reported on their credit report.

Now Freddie Mac is introducing a program to help renters build their credit history. The new program incentivizes apartment operators to report on-time rent payments through technology provided by Esusu Financial.

The technology automatically delivers on-time rental payment data from property management software programs to the credit bureaus. If renters miss payments, they are automatically unenrolled from the program so that negative information is not delivered to the credit bureaus (Equifax, Experian and TransUnion) if they are struggling financially.

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Freddie Mac is the largest purchaser of multifamily loans, accounting for approximately 20 percent of the market. More than 90 percent of the rental units funded through Freddie Mac are affordable to households with low to moderate incomes. Freddie Mac will provide closing cost credits on loans to apartment owners who agree to report on-time rental payments through Esusu’s platform.

Moreover, Freddie Mac negotiated discounted fees for Esusu’s services, which report rents to all three credit reporting agencies while remaining in compliance with industry standards. Esusu can even report up to 24 months of past on-time rent payments, which can immediately provide a positive impact on renter’s credit scores. Renters can verify their rental history on the platform.

Some property owners participate in programs that report rents to one or all three credit bureaus, and renters can also enroll themselves in programs such as RentReporters and RentTrack that send rental payment history to credit bureaus for a fee.

In August, Fannie Mae announced that its Desktop Underwriter system would be adjusted to automatically identify rent payments in mortgage applicant’s bank statements. Renters can opt-in for that program to help them qualify for the loan. Records of missed or inconsistent rent payments will not negatively affect the renter’s ability to qualify for a loan that will be sold to Fannie Mae.

The focus on including on-time rent payments is meant to help people with a limited credit history qualify for homeownership. Approximately 20 percent of Americans have little to no established credit history, according to Fannie Mae researchers, and Black and Hispanic consumers are disproportionately represented in that group.

Including positive rental history can open credit opportunities to more renters. Fannie Mae’s researchers studied a sample of mortgage applicants who had not owned a home during the previous three years and received an unfavorable recommendation through Desktop Underwriter.

Researchers found that 17 percent could have received an approved or eligible recommendation if their rental payment history had been considered.

Read more Real Estate:

Bank programs seek to widen the path to Black homeownership

For Black homeowners, a common conundrum with appraisals

The ‘heartbreaking’ decrease in Black homeownership

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