The initiative aims to help renters build credit
Freddie Mac has rolled out a new initiative urging multifamily landlords to report on-time rental payments to help renters build credit and have a better chance at qualifying for a mortgage.
According to the GSE, less than 10% of renters have their on-time rental payment history reflected in their credit scores – limiting their ability to access credit or obtain competitive rates.
"Rent payments are often the single largest monthly line item in a family's budget but paying your rent on time does not show up in a credit report like a mortgage payment," said Freddie Mac CEO Michael DeVito. "That puts the 44 million households who rent at a significant disadvantage when they seek financing for a home, a car, or even an education. While there remains more to do, this is a meaningful step in addressing this age-old problem."
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Through technology created by Esusu Financial, Freddie Mac will incentivize rent reporting of on-time rental payment data from property management software platforms to the credit bureaus. However, if renters miss their payments, the technology will automatically unenroll them from the program so that it will not affect their credit scores if they're struggling financially.
Freddie, the biggest purchaser of multifamily loans in the US, will provide closing cost credits on loans to rental property owners who agree to report on-time rental payments through Esusu's platform. The firm has also negotiated discounted fees for Esusu's services, which reports rental payments to the credit bureaus – Equifax, Experian, and TransUnion. The Esusu platform can even deliver up to 24 months of past on-time rent payments, which can have an immediate and positive impact on the renter's credit scores.
"At present, the most common way for rents to be reported to the credit bureaus is when there is a missed payment that has gone to a collections agency," said Alexis Sofyanos, senior director of equity in multifamily housing at Freddie Mac. "Freddie Mac wants to flip that script so that renters who pay their rent on time and in full each month get credit for doing so while also putting in safeguards for the most vulnerable."
Samir Goel and Abbey Wemimo, co-founders of Esusu, said that the initiative allows the company to address credit invisibility – an essential first step toward addressing renter financial stability, the executives stressed.
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"Where you come from, the color of your skin, and your financial identity should never determine where you end up in life," Goel and Wemimo said in a statement. "Today, there are over 45 million adults in America with no credit score, the vast majority of whom are immigrants, minorities, and low-to-moderate income households. The benefit of the Esusu platform is that everyone wins. It's a win for renters, property owners, and society at large."