Big Results with a Small Nudge for Renter Credit Building
Just one year ago, Freddie Mac announced a novel renter credit building initiative. The program helps renters build credit by encouraging multifamily operators to leverage third-party technologies that can report on-time rent payments to the three major credit bureaus.
The early results are in, and one thing is clear: We are helping strengthen renters’ circumstances as they establish and improve their credit scores.
As of August, close to 100,000 renters have been enrolled in the program. Roughly 20% of those enrolled now, for the first time ever, have a credit score. More than two-thirds of those enrolled have seen their credit scores improve. And because we report on-time rental payments, a renter who missed or was late on rent would not have seen that reflected in their credit score.
There are tens of thousands of renters today who have access to everything, from lower insurance rates to more affordable car loans, as a result of this initiative. In addition, our credit building program, in concert with Freddie Mac’s new Single-Family effort to consider on-time rental payments — even when they’re not reported to the credit bureaus — as part of the loan purchase assessment, is providing a clearer pathway toward homeownership for those who seek it.
Taking things a step further, a recent announcement from the Federal Housing Finance Agency paves the way for the use of alternative credit scores in the home loan application process, including those that are more directly affected by on-time rent payment reporting. Over time, this change will give renters who benefit from our rent-reporting initiative an improved opportunity to become homeowners should they wish to.
This work is powerful, and it is just the beginning. It took us a year to get to 100,000 renters, but there are more than 44 million renters nationwide. It is time to scale. We gave the industry a nudge, now it is poised to make rent reporting a new standard in the renter experience.
Today, there are more than a dozen companies competing against each other for the opportunity to provide multifamily rent reporting. Just like multifamily properties, no two are the same. Each has its own business model, pricing and products that meet varying needs throughout the market.
One thing that we believe must be a constant, however, is the renter’s interest.
To guide the multifamily industry toward platforms we believe are most renter-centric, Freddie Mac Multifamily will soon unveil a process that invites more companies to be a part of our credit building initiative. We started this work with Esusu Financial Inc.. As we add new participants, we are doing so with clear expectations in mind.
- To participate, a vendor will need to demonstrate that they can report on-time rent payments to all three credit bureaus at no cost to renters.
- To ensure that renters receive credit for their past rental history, we will require reporting of up to 24 months of available, prior on-time rental payments.
- To protect the security of renters’ data, we also want to see that vendors have clear security and privacy standards in place.
- To ensure platforms are efficient for multifamily properties, we will require that all who join our program work with existing property management software systems, and they must be easy to use for renters and property owners.
Finally, we are focused heavily on solutions that are cost-neutral for owners in addition to being cost-free for renters. That’s one of the best ways to make rent reporting a long-term and self-sufficient industry standard. A simple concept set us down this path in the first place: A renter who pays their rent on-time and in full month after month, and year after year, ought to get credit for it. As a leader in multifamily, Freddie Mac will continue pioneering efforts to make sure that happens.
We look forward to partnering with the full range of multifamily lenders, borrowers, investors and rent-reporting companies that want to join us in making rent reporting the industry standard.
©2023 by Freddie Mac.
Transcript: Freddie Mac CEO and CFO Discuss First Quarter 2023 Financial and Business Results
Michael DeVito, Chief Executive Officer
Christian Lown, Executive Vice President and Chief Financial Officer
Making an Impact Through Innovative Financing and Investor Transparency
Robert Koontz, SVP Multifamily Capital Markets