Prospective homebuyers with a history of on-time payments for rent and utilities may soon find it easier to qualify for a mortgage, thanks to changes at Fannie Mae and Freddie Mac.
U.S. Federal Housing Finance Agency Director William Pulte, who is also the chairman of federally controlled Fannie and Freddie, announced the move at a press conference in Washington DC on Wednesday.
“If you pay your rent on time, you are more likely to pay your mortgage on time,” Pulte said. “For decades, our housing system ignored that simple fact, because your credit score would never count it. That’s nonsense, because credit history should include rental history.”
Wednesday’s announcement marks the inclusion of new credit score rules in Fannie Mae’s Selling Guide, the official, comprehensive policy manual detailing requirements for lenders to sell conventional residential mortgage loans to the mortgage giant.
Last year, Pulte announced Fannie and Freddie would allow mortgage lenders to use VantageScore ratings to assess borrower creditworthiness, in addition to or instead of traditional FICO 10T scores.
VantageScore takes into account rental and utility payment history reported to Equifax, Experian, or TransUnion. FICO 10T also considers positive and negative rental payment history reported to the agencies.
Since the pilot began, Freddie Mac has taken delivery of $10 million in loans and will securitize them soon, Pulte said. Pulte expected the change could help “tens of millions” of prospective home buyers.
Department of Housing and Urban Development Secretary Scott Turner says that the Federal Housing Administration will also permit the use of VantageScore 4.0 and FICO 10T as eligible credit scoring models for FHA-insured mortgage underwriting.
“We are taking a meaningful step toward expanding access to homeownership – particularly for creditworthy borrowers who may have been overlooked under older systems,” said Turner.
“Golden Age of Homebuying”
As a result of the change, Pulte said, FICO CEO Will Lansing is considering reducing the cost of the company’s credit scores from $10 to 99 cents, matching the cost of a VantageScore.
Allowing VantageScore, which the three major credit bureaus created as a credit-scoring alternative to a FICO score, encourages competition to lower prices for consumers, Pulte said.
The FHFA regulates Fannie Mae, Freddie Mac, and the 11 Federal Home Loan banks. Together they provide $8.5 trillion in funding for the U.S. mortgage markets and financial institutions.
Turner said the move targets younger, credit-worthy Americans who haven’t accrued a credit history under current models.
“This will benefit only applicants that are credit-worthy and trustworthy,” Turner said. “We’ve been through the financial crisis, we understand that. The rigor will stay in place but we want to make it more available and more affordable.”
