Freddie Mac helps renters build credit and make homeownership accessible

  • The majority of tenants do not see their on-time rental history reflected in credit reports.
  • This puts 44 million households at a disadvantage when seeking financial products like home loans.
  • Freddie Mac’s new program encourages owners to report timely payments to major credit bureaus.

Across the United States, households are feeling the pressure of rising prices on everything from gasoline to groceries. Housing has also become more expensive, house values ​​and rents are at record highs, and the lack of supply is making it harder to find a place to call home.

In this tough economic environment, Freddie Mac has introduced two new initiatives that can help build tenants’ ability to build credit and access homeownership using their on-time rent payment history.

Make rent count for your credit score

For millions of households who don’t own their homes, the biggest monthly payment they make is usually rent – ​​and it’s often their first financial priority. Yet unlike landlords who make regular mortgage payments, renters typically don’t see their on-time rent payments reflected in their credit scores. Worse, the most common way rent payments impact credit scores is when missed rent payments are cashed.

Freddie Mac wants to flip this script.

The mortgage finance company’s multi-family division has developed a program to help tenants build credit by encouraging owners and operators of multi-family properties to report rental payments on time to the three major credit bureaus, in accordance with standards Of the industry.

The initiative helps multi-family landlords immediately report up to two years of a tenant’s on-time rent payment history, which immediately positively impacts credit scores. After registration, the tenant’s on-time rent payments are reported to the credit bureaus each month. The program automatically unregisters a tenant when a missed payment occurs, thus avoiding a negative impact on their score.

“Rent payments are often the biggest monthly item in a family’s budget, but paying your rent on time doesn’t show up on a credit report as a mortgage payment,” said Michael DeVito, CEO of Freddie Mac. . “This puts the 44 million households that rent at a significant disadvantage when looking for financing for a home, a car or even an education. age-old problem.”

To facilitate the reporting process, Freddie Mac has engaged with Esusu, a leading financial technology platform, which allows landlords to seamlessly provide on-time rental payment data from their property management software. directly to the credit bureaus.

This new approach has already proven itself. Since Freddie Mac launched the initiative last year, 86,000 households across more than 900 multi-family properties have signed up. Over 18,000 new credit scores were established, approximately two-thirds of tenants with an existing credit score saw their score upgraded.

Making rent count toward a mortgage

Just as renters don’t reap the benefits of on-time rent payments when it comes to their credit score, they face a similar challenge when looking for a mortgage as first-time homebuyers.

To help with this, Freddie Mac recently announced that it would be changing its standards to consider on-time lease payment history as part of its loan purchase decisions.

Freddie Mac does not lend directly, but rather purchases loans that meet specified criteria. The company’s move to allow lenders to consider positive rent payment histories would make it easier for many first-time homebuyers to get a mortgage.

“This extremely important initiative will help many renters get closer to realizing their dream of homeownership,” DeVito said. “Millions of American adults have no credit score or have a limited credit history. By factoring a borrower’s responsible rent payment history into our automated underwriting system, we can help make housing possible for more qualified tenants, especially in underserved communities.”

The two initiatives, especially when considered together, underscore Freddie Mac’s commitment to empowering tenants who want to become landlords and those who want to take control of their financial situation.

In addition, Freddie Mac offers a number of additional resources for consumers to learn about establishing credit, the home buying process and the financing options available to them. For example, the Freddie Mac CreditSmart® The Financial Capability Program helps consumers take control of their financial future by learning the importance of building, maintaining and using credit. Over the past two decades, more than five million consumers at different stages of their lives have benefited from CreditSmart’s financial education, which is available free of charge, including Homebuyer U, a comprehensive guide to the buying process and ownership of a house.

“Our company-wide approach already includes programs to help consumers understand credit and initiatives to help renters build and improve their credit scores,” said Mike Hutchins, president of Freddie Mac. , “Invoicing rent payments on time into our automated underwriting system will help create even more opportunities for families across the country.”

Learn more about how to make your rent more profitable with Freddie Mac.

This post was created by Insider Studios with Freddie Mac.

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