Steady Rent Payments Invisible to Lender

In credit circles they’re called “invisibles”—50 million people in the United States who have trouble getting a mortgage because they have little or no credit data on file.

These invisibles often include people who’ve been responsible over many years for paying their rent, utility, and phone bills, but because their payments aren’t included in traditional credit score calculations, lenders can’t easily factor the performance into their due diligence. Traditional profiles focus on mortgage payments, car payments, and credit car payments among other measures of credit performance.

“These are people who are often making rental payments that are even higher than mortgage payments,” Rep. Al Green, D-Texas, said at a roundtable discussion NAR hosted today on how to help these underserved borrowers.

Several bills are in the works to change this dynamic, including a bill by Rep. Green, the FHA Alternative Credit Pilot Program Authorization Act, H.R. 123, that would expand an existing pilot in which the FHA factors in non-traditional criteria like rent payments in their credit modeling.

Joining Green at NAR’s roundtable, which was hosted in partnership with other real estate associations, were reps. Ed Royce, R-Calif., and Rep. Keith Ellison, D-Minn., both of whom have introduced their own bills to help boost the use of non-traditional credit scoring criteria.

Read moreWhat to Know About Credit Scores

“One of the contributors of the decline in first-time homeownership is the way in which the GSEs [Fannie Mae and Freddie Mac, the two secondary mortgage market companies] rely on a singular credit scoring calculation,” said Royce. “If we can open this up, we could get a much bigger pool of first-time homebuyers who could make the cut.”

Royce’s bill, the “Credit Score Competition Act,” H.R. 4211, would work with Fannie Mae and Freddie Mac to build in alternative criteria to their credit scoring rules.

Ellison’s bill, the “Credit Access and Inclusion Act,” H.R. 3035, would create a way for gas, electric, and telecommunications companies to report their customers’ payment histories to lenders. “The status quo is harmful,” Ellison said. “Higher costs, limits on loans—it doesn’t have to be that way.”

NAR supports the bills of all three lawmakers. “This is a real problem,” said NAR Chief Lobbyist Jerry Giovaniello.

Joining NAR to host the roundtable were the Asian Real Estate Association of America, the National Association of Hispanic Real Estate Professionals, and the National Association of Real Estate Brokers.

—Robert Freedman, REALTOR® Magazine

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