Freddie Mae is considering a similar move to Fannie Mae’s recent addition of mortgage credit assessments based on rent, an effort to adopt more equitable and modernized underwriting policies.

While disclaiming any formal announcement on the matter, Freddie’s CEO Michael DeVito told attendees at the Mortgage Bankers Association’s annual convention in San Diego that such a move is among the types of “cash-flow underwriting” updates Freddie is considering.

“Do the credit models work the way they’re intended for the people that we’re trying to evaluate…through that lens? I think there is broadening to be done in the way that credit works,” DeVito said. “[Fannie Mae CEO] Hugh [Frater]’s team has been out front on the rental data. We’re certainly on that as well.”

Fannie only added rental data to its automated underwriting system last month and its usage rate in credit scores is low. However, Frater told conference attendees that he expects it to become commonplace over the course of the next decade.

“I predict that in 10 years time, maybe even five…rental data will be incorporated into any or every credit scoring system, whereas today it’s less than 5%,” said Frater.

Rent-based credit assessments, making it easier for multiple borrowers to qualify by allowing underwriting to be based on the average credit score rather than the lowest one, and expansion of eligibility for high loan-to-value refinancing all are aimed at making lending more affordable and equitable, he said.

While credit expansion has to be done carefully to account for risks in the market that include a run-up in home prices, affordability concerns currently outweigh depreciation risk, said Frater.

“I’m not actually as concerned about a downturn as I am concerned about what it means for people who are trying to gain access to a home,” he said. “Prices have gone up five times more than the rate of income growth for low- and moderate-income borrowers. That might help the seller and everybody who benefits from the home sale or mortgage transaction, but it doesn’t do anything for people who are trying to get to their dream of affordable homeownership.”

Home prices do appear to be supported by long-term household formation trends, noted DeVito.

“We have a generation of people who really want to be homeowners and they are willing to do what’s necessary to try to achieve that and so we think that’s sustainable,” he said. “That demand is going to be there. We don’t think it goes away.”

However, even with relatively higher levels of home equity and broader loss mitigation options in place, the industry will likely have to contend with an uptick in foreclosures going into 2022, DeVito said.

“We’re going to do everything we can to avoid it. Certainly we don’t think this is the housing crisis of the last decade. The supply-demand equation is different and home prices are at a very different place, but the restart of the foreclosure process that will probably happen late this year or early next, it’ll be bumpy, because the market hasn’t done this in a long time.”





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