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Bringing Credit Invisibles Into the Light

This piece originally appeared in the November 2022 edition of MReport magazine, online now.

Fannie Mae recently launched the Multifamily Positive Rent Payment Reporting program—a pilot program aimed at helping renters build their credit history and improve their credit score. Through the program, eligible multifamily property owners will have the opportunity to share timely rent payment data through a vendor network to the three major credit bureaus for incorporation in the renter’s credit profile.

The Positive Rent Payment Reporting program aims to accelerate the adoption of rent payment reporting by the multifamily industry, complimenting Fannie Mae’s existing practice of helping lenders incorporate positive rent payments in the single-family mortgage credit evaluation process via Desktop Underwriter (DU).

Michele M. Evans is Fannie Mae’s EVP and Head of the Multifamily Division, responsible for the company’s multifamily business functions. Fannie Mae’s Multifamily Division is a source of financing and securitization for quality rental housing in the United States. The Multifamily Division serves a wide spectrum of the market, including conventional, rent-restricted, cooperatives, seniors, student housing, and manufactured housing communities, and finances all loan sizes—from a $1 million single-asset loan to a $1 billion structured transaction facility.

Esusu Financial Inc., Jetty Credit, and Rent Dynamics have been tapped as approved vendors for the program, as the three will collect rent payment data from multifamily property owners and format it for dissemination to the credit bureaus. The program is a positive-only initiative, as renters who miss a payment will be automatically unenrolled to preserve their credit standing, and renters may opt out of the program if they prefer.

As head of the division administering the Positive Rent Payment Reporting pilot, Evans recently shared with MReport details of the program, and how the GSE continues to help renters and homeowners overcome the barriers faced on their housing journey.

Please explain a brief history of the program and what it offers.
The Multifamily Positive Rent Payment Reporting Pilot program rolled out September 27 and will run for 12 months through September 30, 2023. At the core of the program, Fannie Mae will be able to share positive rent payments to the three major credit bureaus for inclusion in the calculation of a consumer’s credit report to help support, grow, and increase people’s credit scores.

What they are reporting is on-time monthly payments to the credit bureaus … so it is a positive, not a negative.

We are driving towards bolstering equitable access to credit and removing unnecessary obstacles in a consumer’s housing journey, whether they want to rent, or aspire to one day own a home of their own. Given that rental payments are rarely included in credit histories, we think that that puts many renters at a disadvantage.

As a company, Fannie Mae is extremely focused on Environmental, Social, and Governance (ESG) efforts, and this program fits very nicely into the housing stability and racial equity programs that we have.

The Multifamily Positive Rent Payment Reporting program is part of Fannie Mae’s Equitable Housing Plan and our Duty to Serve Plan for 2022.

What spurred Fannie Mae to launch the Positive Rent Payment Reporting pilot program?
When we investigated some of the data regarding the percentage of the population that has no established credit history, based on some work that was done by TransUnion, 15% of the population nationwide has a very thin or no credit profile. We dug a little deeper and asked, “How does that impact Black and Latino consumers?” When we looked specifically at those two groups, we examined their credit scores, and when you look at Black consumers, 41% had subprime credit scores, while Latinos had 29% subprime scores, versus white consumers at 16%. As you can imagine, these imbalances reinforce racial disparities, their access to credit, and the ability for renters to access quality, affordable housing.

The goal for many renters, in many instances, particularly given what homeownership does in terms of building wealth, is to ultimately become a homeowner. This is truly an opportunity to really help renters. When you think about the inflationary pressures that people are seeing today, anything that can lower costs would be a positive.

We talked a little bit about access to homeownership. It is something that we do that is part of what Fannie Mae does. We would love to see a continuation of that housing journey from renter to homeowner one day, and if we could be a catalyst to support that, that would be great.

We also think there are a large number of credit-invisible consumers, and we think that this really kind of chips away at that number. And again, as people are growing their credit scores, it gives them opportunities.

How exactly does the program work, and is there any cost to the renter for participating in the program?
The program is offered to eligible Fannie Mae property owners, but this is a “positive-only” initiative. It is a choice to opt-in or opt-out. If the renter misses a payment, they are automatically unenrolled to preserve their credit standing.

Fannie Mae is going to cover the cost for 12 months. Our goal is to accelerate adoption of rental payment reporting across the entire multifamily industry, and given where we sit in the housing ecosystem, we think that we have that opportunity to drive that.

How did Fannie Mae choose its vendor partners for this program?
The vendors participating in this pilot are Esusu Financial Inc., Jetty Credit, and Rent Dynamics. What they are doing is making this quite easy for the borrower.

As mentioned, Fannie Mae is going to cover the cost for 12 months, accessing the property owners and property management software systems, pulling all the information out of the systems, taking that data, putting it into a digestible format, and transmitting that data to the credit bureau.

Besides the fact that we are making it easy for renters, what are the benefits for borrowers? TransUnion did a study on this and found that a lot of renters will choose a unit with rent reporting over one without, thus increasing the number of eligible renters at certain properties.

The program will motivate renters to pay on time. TransUnion also reported that 73% of renters were more likely to pay on time if their rent was being reported, resulting in a reduction in delinquencies and an increase in net operating income.

What will determine if the program continues or will be discontinued?
We have made a commitment for the next 12 months, as we will be testing the market, seeing what we are able to do, how many borrowers opt-in, and how many renters benefit.

At that point, when we are done with the pilot program, we will sit back and evaluate what we were able to do, what we were able to accomplish, and then determine what the next steps are. We have not predetermined anything for what may happen after the 12-month pilot. That is very typical of what we do: when we do a pilot program, we test the market and see what we can accomplish during this period of time.

As I mentioned, this endeavor is part of our Equitable Housing Finance Plan, and one of two initiatives that we are really pursuing in a big way.

I am excited about what we are going to be able to learn over the next 12 months, and then we will be happy to tell everybody what the next steps are going to be.

What are some of the other initiatives that Fannie Mae is undertaking to increase equitable housing?
We rolled out the Expanded Housing Choice Initiative this year, where we are providing a pricing incentive for owners in Texas and North Carolina, as those are two states where vouchers are not accepted as a source of income. We are incentivizing property owners in those markets to accept housing choice vouchers as a source of income for renters.

We are working very closely with the U.S. Department of Housing & Urban Development (HUD) on that initiative. The goal is to get people in those markets that have housing choice vouchers greater access to a greater number of properties in those markets, and for those vouchers to be included as a source of income.

It is also an opportunity for us to examine some of the challenges associated with an initiative of this nature, particularly as borrowers are trying to work through the system, and how we can work with HUD and with borrowers to try to make processes smoother and make it easier for them.

We also have Sponsor-Initiated Affordability that was rolled out in 2021. The goal with that was to preserve naturally occurring affordable housing and workforce housing by offering incentives as well. The idea was that a sponsor would take 20% of their units and hold 20% of their units at 80% of the AMI [Area Median Income] for the life of the loan.

When you think about all the rental increases that are happening in the marketplace, what this does is incentivize a borrower to take a certain percentage of their units, set them aside, hold them at 80% of AMI for the life of the loan. In many respects, it is a way to proactively manufacture affordable supply, or preserve affordable supply in the market, where we know affordability continues to be a huge challenge.

I know you have been with Fannie Mae for more than 30 years now. Have you ever seen a time, other than now, where you can say affordability has been a bigger issue in preventing people from achieving homeownership?
No. I really have not. What is interesting about the time that we are in right now, is the affordable supply keeps getting smaller and smaller. We must figure out how to make sure that we do everything to support affordable housing, in general. But if we can help somebody who is a renter become a homeowner, we are going to help in those efforts. We are going to make sure that we are rolling out a variety of programs to support those efforts.

Affordability and a safe, sanitary home, and a rental home is so critical. But obviously the way to build wealth as we have seen historically over the years is through homeownership. There is a clear connection between the work that we are doing and the goal of homeownership.

Any final comments on the Positive Rent Payment Reporting pilot program?
We at Fannie Mae are excited about this pilot, as you can imagine. Any program of this nature takes a lot of time, and it is a ton of analytics, a lot of work. The team worked hard getting this pilot program out into the marketplace, and I think our ultimate goal is to create a movement in the industry where positive rental payment reporting becomes something that becomes more of a standard. Anything we can do to get us to that place would be perceived as a success.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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