Saving up enough money for a down payment on a home is a whimsical feat for a large swath of the U.S. population. And even for those whose finances align, a less-than-favorable credit score can stop prospective homeowners in their tracks.
This week Fannie Mae announced the launch of its Multifamily Positive Rent Payment Reporting pilot program, aimed at helping renters build their credit history and improve their credit score. Starting this week, eligible multifamily property owners can share timely rent payment data through a vendor network to the three major credit bureaus for incorporation in the renter’s credit profile.
“Around 20 percent of the U.S. population has little to no established credit history, a group in which Black and Latino/Hispanic people are disproportionately represented,” says Michele Evans, Executive Vice President and Head of Multifamily at Fannie Mae. “Of the consumers who do have a credit score, a disproportionate number of Black consumers have a subprime credit score. These imbalances reinforce racial disparities in access to credit and quality affordable housing among renters and homeowners.”
Currently the homeownership gap between Black Americans and white Americans stands at roughly 30 percent. And its remained mostly unchanged for the last several decades. Homeownership has always been a means to build generational wealth, but with fewer Black families buying, gaps persists.
In a 2022 EBONY interview with real estate entrepreneur Don Peebles, he noted that the homeownership rate for Black Americans was higher in 1968 than it is today. “What you find today is there's this attitude, especially amongst white liberals, that we are all in it together and we're all equal,” Peebles noted at the time. “And that's just not the case because we haven't had equal access to opportunity.”
Opportunity is exactly what Fannie Mae says they are hoping to create with this pilot program. It is the latest solution among Fannie Mae’s ongoing efforts to bolster equitable access to credit and remove unnecessary obstacles in a consumer’s housing journey—whether they choose to buy a home or rent. Evans says that the program will ultimately give customary renters the ability to access housing in higher-opportunity neighborhoods, obtain a mortgage, and attain lower-cost credit, such as auto loans and education financing. “By enabling easier and more expansive adoption of positive rent payment reporting, we can knock down this longstanding barrier to building credit and help more consumers begin to establish a strong financial and credit foundation,” Evans adds.
Historically, a renter's ability to show responsible payment habits, has not been reflected in consumer credit scores. Therefore potential home buyers can’t benefit from being fiscally and financially accountable. The Positive Rent Payment Reporting changes that, giving property owners the opportunity to reward good tenants by reporting their good financial behaviors. Because this initiative has a positive-only goal, renters who miss a payment are automatically unenrolled to preserve their credit standing, and renters may opt out of the program if they prefer.
“By accelerating the adoption of positive rent reporting across the multifamily industry, we will help ensure renter households get the credit they deserve for paying on time each month,” says Evans. “This builds on the positive rent payment history enhancement we introduced in the single-family mortgage market last year, which has opened the door to homeownership for many more renters who have aspired to buy.”