In a country where homeownership is often synonymous with stability and prosperity, an inequitable credit system that disproportionately affects Black families and other people of color prevents many from realizing this dream. Many of these potential homebuyers, despite being financially responsible, find themselves caught in a catch-22: without a traditional credit history, they can't get a mortgage, but without a mortgage, they can't build that history.

The CEO of Fannie Mae, Hugh R. Frater, recently addressed this pressing issue, stating, "Owning a home has long been one of the most effective ways to build wealth. But for many lower-income renters – especially for Black families and other people of color – the leap from renting to owning can seem nearly impossible." The culprits? Systemic biases, an over-reliance on traditional credit metrics, and a lack of innovative solutions to tackle the problem.

Traditional ways to build credit—like student loans, credit cards, or using a parental co-signer—aren't universally accessible. As a result, a significant portion of the U.S. population, particularly people of color, remains underrepresented in the credit sphere. Black consumers, for instance, often cite insufficient credit score or credit history as their most significant barrier to securing a mortgage.

Understanding this, Fannie Mae and Freddie Mac updated their automated mortgage underwriting systems to consider a year's worth of on-time rent payments as a valid credit input. This paradigm shift recognizes a straightforward fact: consistent rent payment is a reliable indicator of an individual's ability to manage and meet monthly mortgage obligations.

Floify Makes It Easier For Mortgage Lenders to Leverage Rental History

While the Floify platform has always been at the forefront of integration with VOA providers like IR AccountChek® and Plaid, we saw an opportunity to enhance this workflow for lenders and borrowers alike.

Our upgraded VOA integrations now enable mortgage lenders to order a full 12-month bank transaction history and seamlessly upload the report to Fannie Mae's Desktop Underwriter® and/or Freddie Mac's Loan Product Advisor®. By doing so, mortgage lenders can access this critical new program to open up the credit box for underserved communities.

For lenders, it means a wider pool of mortgage-ready customers, many of whom were previously marginalized by the conventional system.

There's even more good news. Fannie Mae's analysis suggests that such changes could be game-changing. In a sample of recent applicants, a significant 17% might have received mortgage approval if only their rental payment history was considered.

The ramifications of such a shift cannot be understated. With the Black homeownership rate trailing white households by roughly 30 percentage points, translating to 4.7 million fewer homeowners, addressing this disparity is more than just a business decision.

At Floify, we're proud to be part of the solution.