CHM Blog

Renters get a long-overdue break on credit

If ol’ Ben Franklin’s saying that an ounce of prevention is worth a pound of cure ever applied, nowhere is it more apropos than in credit scores.

In a rule change finalized last month, Fannie Mae and Freddie Mac announced they would begin accepting mortgages underwritten using VantageScore, a credit scoring model that factors in on-time rental payments. Realtor.com's Tristan Navera says the story is really about millions of Americans who've been doing everything right — paying rent on time, keeping the lights on — but still couldn't get a mortgage because none of that counted.

Until now, that is. VantageScore, developed jointly by Equifax, Experian, and TransUnion, estimates that including rental payment history could boost the credit scores of about 7.7 million Americans above the 620 threshold typically required for a traditional mortgage. For young consumers alone, average scores could rise by 67 points — and some by as much as 100.

William Pulte, director of the Federal Housing Finance Agency, which oversees Fannie and Freddie, announced the expansion on April 22 and did not mince words. The fact that late rent hurt your credit but on-time payments didn't help was, in his words, "nonsense."

Realtor.com senior economist Jake Krimmel says the shift matters most for a specific slice of the market — freelancers, gig workers, the self-employed, immigrants, and younger buyers who have reliable income but a thin or nonexistent credit file. "They are probably qualified as a whole, but not on paper under the current rigid, outdated system," he said.

Pennsylvania-based lender Newrez was an early adopter using the new model, originating the first $10 million in loans. VantageScore’s Bob Johnson said the process ran close to normal lending procedures, validating that the model is scalable. "Consistent on-time payment behavior across a wider range of obligations can now show up in a credit score in ways it often did not under legacy models," he said. "That is particularly meaningful for thin-file and previously unscoreable borrowers."

The numbers back that up. In a study of 600,000 people, VantageScore found that roughly 10% of the country's 77 million credit-relevant renters would benefit from the change — enough to create an estimated market opportunity of 2.1 million households and $777 billion in new mortgage volume.

Montana-based FICO, the longtime industry standard, also now incorporates positive and negative rental history through its FICO 10T model. United Wholesale Mortgage announced April 29 it would accept both FICO and VantageScore. HUD Secretary Scott Turner said his department would follow suit "soon."

There are, however, some cautions worth noting. FHA delinquency rates have been creeping up. And the broader economic backdrop remains shaky — high interest rates, persistent housing supply shortages, and a labor market described as somewhere between uncertain and unstable. Policies expanding the credit pool are only as strong as the labor market supporting them.

Still, for millions of renters who've spent years building a financial track record that nobody noticed, this is the kind of change that makes a real difference.

Realtor, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Higher

Mortgage rates are under pressure today. The MBS market worsened by -108 bps last week. This was enough to increase mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

These are the three things that have the greatest ability to impact rates this week. 1) Geopolitical, 2) The Fed and 3) Early close.

1) Geopolitical: Once again, this category will continue to dominate long bonds as its impact on inflation/oil prices and more are driving rates.

2) The Fed: We will get the Minutes from the last FOMC meeting on Wednesday but really this week is about new Fed Chair Warsh taking over.

3) Early Close: We have a long holiday weekend with the bond market closing early Friday afternoon and will remain closed for Memorial day and reopen on Tuesday.

This Week's Potential Volatility: High

This morning markets are moving sideways. Volatility has started at low levels but geopolitics has the potential to increase it at any time.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.