Shedding Light on the Invisibles of Credit –

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

Fannie Mae recently launched the Multifamily positive rent payment Declaration program—a pilot program to help tenants build their credit history and improve their credit score. Through the program, owners of eligible multifamily properties will have the ability to share timely rent payment data through a network of providers with the three major credit bureaus for incorporation into the tenant’s credit profile.

The Positive Reporting of Rent Payments Program aims to accelerate the adoption of rent payment reports by the multi-family industry, complementing Fannie Mae’s existing practice of helping lenders incorporate positive rent payments into the single-family mortgage credit assessment process via Office Underwriter (DU).

Michele M. Evans is the Executive Vice President of Fannie Mae and Head of the Multifamily Division, responsible for the company’s multi-family business functions. Fannie Mae’s multi-family division is a source of financing and securitizing quality rental housing in the United States. The Multi-Family Division serves a wide range of markets, including conventional, rent-restricted, co-op, senior, student and manufactured housing co-ops, and finances all loan sizes, from loan to asset. one-time $1 million transaction to a $1 billion structured transaction. ease.

Esusu Financial Inc., Discarded creditand Rental dynamics have been tapped as approved providers for the program, as the three will collect rent payment data from owners of multi-family properties and format it for distribution to credit bureaus. The program is a positive initiative only, as tenants who miss a payment will automatically be unenrolled to preserve their creditworthiness, and tenants can opt out of the program if they prefer.

As head of the division administering the positive reporting of rent payments pilot project, Evans recently shared with MReport details of the program and how the GSE continues to help tenants and landlords overcome obstacles encountered on their housing journey.

Please explain a brief history of the program and what it offers.
The Multi-Family Positive Rent Payment Reporting Pilot Program launched on September 27 and will run for 12 months until September 30, 2023. At the core of the program, Fannie Mae will be able to share positive rent payments with all three major offices credit for inclusion in the calculation of a consumer’s credit report to help support, develop and increase people’s credit scores.

What they do report is on-time monthly payments to the credit bureaus…so that’s a plus, not a minus.

We work to strengthen fair access to credit and remove unnecessary barriers in the housing journey for consumers, whether they want to rent or aspire to one day own their own home. Since lease payments are rarely included in credit history, we believe this puts many tenants at a disadvantage.

As a company, Fannie Mae is extremely focused on environmental, social, and governance (ESG) efforts, and this program fits very well into the housing stability and racial equity programs we have.

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

What prompted Fannie Mae to launch the Positive Rent Payment Reporting pilot program?
When we looked at some of the data regarding the percentage of the population that does not have an established credit history, based on some work done by TransUnion, 15% of the population nationwide has a credit profile very thin or non-existent. We dug a little deeper and asked, “How does this affect black and Latino consumers?” When we looked specifically at these two groups, we looked at their credit scores, and when you look at black consumers, 41% had subprime credit scores, while Latinos had 29% subprime scores, compared to 16% for white consumers. As you can imagine, these imbalances reinforce racial disparities, their access to credit, and the ability of renters to access affordable, quality housing.

The goal for many renters, in many cases, especially given what homeownership does in terms of wealth creation, is to eventually become a homeowner. It’s really an opportunity to really help the tenants. When you think about the inflationary pressures people are seeing today, anything that can reduce costs would be positive.

We talked a bit about access to property. It’s something we do and it’s part of what Fannie Mae does. We would love to see this tenant to landlord housing journey continue one day, and if we could be a catalyst to support that, that would be great.

We also believe that there are a large number of consumers invisible to credit, and we believe that really reduces that number. And again, as people increase their credit rating, it gives them opportunities.

How exactly does the program work and are there any fees for the renter to participate in the program?
The program is available to eligible Fannie Mae owners, but it is a “positive only” initiative. It is an opt-in or opt-out choice. If the tenant misses a payment, they are automatically unsubscribed to preserve their solvency.

Fannie Mae will cover the costs for 12 months. Our goal is to accelerate the adoption of rent payment reporting across the multifamily industry, and given our position in the housing ecosystem, we believe we have the opportunity to do so. to arrive at.

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

As mentioned, Fannie Mae will cover the cost for 12 months, accessing landlords and property management software systems, extracting all information from the systems, taking that data, putting it into a digestible format, and transmitting that data. at the credit bureau.

Besides the fact that we make it easier for tenants, what are the advantages for borrowers? TransUnion has done a study on this and found that many tenants will choose a unit with a rent report over one without, increasing the number of eligible tenants in some properties.

The program will encourage tenants to pay on time. TransUnion also reported that 73% of tenants were more likely to pay on time if their rent was declared, resulting in reduced delinquencies and increased net operating income.

What will determine whether the program continues or is interrupted?
We are committed for the next 12 months as we will test the market, see what we are able to do, how many borrowers opt in and how many tenants benefit.

At that point, when we’re done with the pilot program, we’ll sit down and assess what we were able to do, what we were able to accomplish, and then figure out what the next steps are. We have no plans in advance for what might happen after the 12 month pilot project. It’s very typical of what we do: when we do a pilot program, we test the market and see what we can accomplish during that time.

As I mentioned, this effort is part of our fair housing finance plan and one of two initiatives that we are really pursuing in a big way.

I’m excited for what we’ll be able to learn over the next 12 months, and then we’ll be happy to tell everyone what the next steps are.

What are some of the other initiatives that Fannie Mae is undertaking to increase fair housing?
We launched the Expanded Housing Choice Initiative this year, where we offer a rate incentive to homeowners in Texas and North Carolina, as these are two states where vouchers are not accepted as a source of income . We encourage landlords in these markets to accept housing choice vouchers as a source of income for tenants.

We are working closely with the US Department of Housing and Urban Development (HUD) on this initiative. The goal is to provide people in these markets who have housing choice vouchers with greater access to more properties in these markets, and have these vouchers included as a source of income.

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

We also have sponsor-initiated affordability that rolled out in 2021. The goal was to preserve natural affordable housing and workforce housing by also providing incentives. The idea was that a sponsor would take 20% of its shares and hold 20% of its shares at 80% of the AMI [Area Median Income] for the term of the loan.

When you think of all the rent increases that happen in the market, that’s incentivizing a borrower to take a certain percentage of their units, set them aside, keep them at 80% AMI for the duration of the ready. In many ways, it’s a way to proactively manufacture affordable supply or preserve affordable supply in the marketplace, where we know affordability continues to be a huge challenge.

I know you’ve been with Fannie Mae for over 30 years now. Have you ever seen a time, other than now, where you can say affordability has been a bigger issue in keeping people out of home ownership?
No really not. What’s interesting about the time period we’re in right now is that the affordable supply keeps shrinking. We have to find a way to ensure that everything is done to support affordable housing in general. But if we can help someone who is renting to become a landlord, we will contribute to these efforts. We will make sure to deploy a variety of programs to support these efforts.

Affordability and a safe and hygienic home, as well as a rental home are so essential. But obviously the way to create wealth, as we have seen historically over the years, is through home ownership. There is a clear link between the work we do and the goal of home ownership.

Do you have a final comment on the positive reporting of rent payments 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’s a ton of analysis, a lot of work. The team has worked hard to bring this pilot program to market, and I think our ultimate goal is to create a movement in the industry where positive rent payment reports become something that becomes more of a norm. Anything we can do to get there would be seen as a success.

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