Can Big Data Increase Home Ownership?

September 7, 2021 at 9:23 am Leave a comment

Good Morning, folks. The summer slumber is over and in case you missed it, the regulatory development that most intrigues me is Fannie Mae’s announcement that in a little more than a week from now it will start using a mortgage applicants’ history of consistently making rent payments to qualify first time home buyers for a mortgage.

Under the guidelines announced by the GSE on August 30th, borrowers must be able to document their rent payment history for the last 12 months. Acceptable documentation includes cancelled checks, bank statements, copies of money orders or other reasonable methods to document the timely payment of rent.

So why does this announcement intrigue me so much? One of the key emerging issues percolating in the Fintech/ banking industry is the extent to which the increasing availability of non-traditional data can and should be used to qualify lenders. A second key issue is what role the conserved GSE’s should play in the housing market?  This announcement has implications for both of these issues.

In announcing the use of the new criteria, Hugh Frater, Fannie Mae’s CEO, opined that this step would help address housing inequalities by making more African Americans eligible for home ownership. According to Frater approximately 20% of the US population has little or no credit history and the use of rent payment history is a safe and sound way of helping to address this issue. After all, as I have been told by many credit union underwriters, there are often members who are good lending risks even though their credit scores would indicate otherwise.

It remains to be seen just how positive an impact this expanded use of data will have. For example, should a member’s non-payment of rent be counted against her?

Furthermore, anytime new data is used to qualify borrowers there are of course new challenges to the application of fair lending laws. I hope that Fannie Mae keeps us updated on the impact that this change is having on the housing market.

Entry filed under: Mortgage Lending, Regulatory, technology. Tags: , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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