Fannie Mae has a new plan to help renters improve their credit scores by helping landlords pay for rent reporting to credit agencies, according to a report from USA Today.
GlobeSt.com reached out to Fannie Mae for a comment but received no reply.
Fannie Mae will work with three New York-based third-party services— Esusu Financial Inc., Jetty Credit and Rent Dynamics—that can provide reporting for landlords and property management companies.
The major credit reporting firms do accept rental payment reports, which can affect credit scores. Timely payments when reported can increase them, while late rents can have a negative effect. According to Credit.com, many landlords and operators report late payments already. Timely payments are “becoming more common to be reported.” But the reporting remains scarce among smaller property owners. Third-party services can make reports; they charge for doing so.
“Given the reach that we have across the country, we’re trying to be a catalyst to accelerate this adoption,” Michele Evans, executive vice president and head of multifamily at Fannie Mae, told USA Today. “We’re incentivizing borrowers [landlords] so it benefits historically underserved groups who just disproportionately have no credit scores or lower.”
For tenants who can pay on a timely basis, there is the possibility of an improved credit score that can eventually help in things like eventually applying for a mortgage.
A Consumer Finance Protection Bureau report from 2015 estimated at the time that “26 million Americans are ‘credit invisible,’” meaning they have no history with any of the three major credit reporting firms. Another 19 million are considered “unscored”: lacking enough recent credit history for a rating agency to generate a score.
Nuveen just announced a partnership with Esusu, which “[reports] rent payments to major credit bureaus to help renters boost their credit scores, all while helping owners and property managers maximize returns.” Esusu claims that the “average resident’s credit score increased +51 pts in 18 months” using the company’s system.
Esusu, Jetty, and Rent Dynamics all mention in their marketing that they help property owners build ESG initiatives by working with renters (the “S” is for social).
What might be of most interest to landlords and property management firms, though, is the carrot effect of rent reporting and what it can deliver to them. As Esusu puts it, operators can see “a 25% increase in on-time rent payments,” presumably because people don’t want to hurt their credit reports. “Plus, 2/3 residents prefer apartments with rent reporting,” the company says.