The federal Fair Housing Act (42 U.S.C. §§ 3601 and following) makes discrimination in residential real estate transactions illegal. But more than 50 years after this law was enacted, a significant gap in homeownership rates between people of color and white people remains.
So, on June 8, 2022, Fannie Mae and Freddie Mac announced plans to tackle this racial homeownership disparity. Fannie Mae and Freddie Mac's changes include providing down payment assistance and requiring lower mortgage insurance premiums. They're also expanding counseling services and will introduce technology to improve access to credit and make home appraisals more equitable.
Another significant change is that Fannie Mae and Freddie Mac will implement a credit reporting system that considers rent payments when determining creditworthiness for a home loan.
Fannie Mae and Freddie Mac are government-sponsored entities, often called "GSEs," that own or guarantee many of the mortgage loans in the United States. The GSEs don't make loans. Instead, mortgage companies, banks, and other lenders originate loans and sell them to investors, like Fannie Mae and Freddie Mac, on what's called the "secondary mortgage market." The GSEs then hold, sell, or repackage the mortgage loans as investments.
Lenders must meet the GSEs' guidelines to sell their loans to Fannie Mae or Freddie Mac. Conventional loans that comply with these guidelines are called "conforming loans." As part of the process of making conforming loans, lenders look at an applicant's credit.
Throughout this country's history, people of color have been denied full access to housing and homeownership through practices such as redlining. ("Redlining" happens when a lender singles out a neighborhood for loan denials based on race and ethnicity.)
Another barrier that keeps renters of color from being able to purchase a home is the fact that rent payments typically aren't factored in when determining creditworthiness. So, Fannie Mae and Freddie Mac are rolling out a new credit reporting system that considers rent payments when determining whether to give an applicant a mortgage loan. Specifically, the GSEs' underwriting systems will look at an applicant's positive rental payment history when completing credit risk assessments. These assessments establish a home loan's eligibility for sale to Fannie Mae or Freddie Mac.
The GSEs will also enhance and expand automated underwriting for borrowers who don't have a credit score. So, it will be easier for consumers without a credit history to qualify for a mortgage using alternative credit sources, like bank statement data.
Effective date: June 8, 2022