Key Takeaways:
- “Rent reporting” and credit monitoring occur when an individual’s monthly rent payments are reported to a consumer credit bureau, which then adds that information to the individual’s credit report.
- Rent reporting can help increase credit scores over time if complete monthly payments are made when they come due.
- Fannie Mae and Freddie Mac are subject to affordable housing goals that are set annually by the Federal Housing Finance Agency (FHFA).
Rent reporting aims to help lower-income individuals build their credit but it can also benefit landlords by, among other things, encouraging timely payments and attracting more responsible tenants.
As part of its remit to spur more affordable housing, Fannie Mae launched a rent reporting pilot program in 2022, at no cost to landlords and tenants, partnering with Esusu, Jetty, and Rent Dynamics. Freddie Mac and Esusu first partnered on their rent reporting program in November 2021. As of September 2023, Freddie Mac’s initiative with Esusu was established at over 1,400 properties in the U.S., with over 184,000 units reporting their rent payments through it. The agency also has since expanded its rent-reporting vendors to include BILT, Jetty, Stake, and Sperlonga.
Read on to learn more about the affordable housing goals of Fannie Mae and Freddie Mac, as well as the potential benefits of rent reporting for renters and property owners alike.
What Is Rent Reporting?
Rent reporting occurs when an individual’s monthly rent payments are reported to a consumer credit bureau, which then adds that information to the individual’s credit report. Rent reporting aims to help individuals who pay rent on time by allowing them to build credit and expand their access to financial services.
When a person’s rent payment information is reported to any of the three main credit bureaus—TransUnion, Experian, and Equifax—they automatically include it in the individual’s credit report.
Some rent-reporting companies charge tenants and/or landlords a fee for the service, while other companies provide the service for free. Either way, rent reporting is often introduced and administered at multifamily properties according to the following steps:
- A property owner (or manager) selects a rent reporting company.
- The owner provides the rent-reporting company with access to the property’s rental-payment database.
- Tenants individually consent or decline to have their rent payment information reported by the rent reporting company to credit bureaus.
- For tenants who consent, payment records are then sent monthly to credit bureaus, which then add the information to the individuals’ credit reports.
How Does Rent Reporting Help Build Credit?
For individuals who make their monthly rental payments on time and in full, rent reporting helps build credit by sharing that positive information with the main credit bureaus. Those bureaus then incorporate the rental payment history into their credit report—which, in turn, is used to generate a credit score.
Over time, a good payment history can significantly improve credit scores and, thus, expand access to mortgages, credit cards, and other types of financing. In the widely used FICO credit score, payment history accounts for 35% of the total score.
Fannie Mae and Freddie Mac Affordable Housing Goals
Fannie Mae and Freddie Mac are subject to affordable housing goals that are set annually by the FHFA; the goals apply to Fannie and Freddie’s purchase of both single-family and multifamily mortgages. (According to the U.S. Department of Housing and Urban Development, “affordable” housing exists when a resident pays no more than 30% of gross income toward housing costs.)
For multifamily mortgages, Fannie and Freddie are subject to three types of purchase requirement goals:
- A goal for the share of units financed by mortgages that are affordable to families with incomes of 80% or less of area median income (AMI) (“low income”)
- A goal for the share of units financed by mortgages that are affordable to families with incomes of 50% or less of area median income (“very low income”)
- A goal for the share of units financed by mortgages covering five- to 50-unit properties (“small multifamily”) that are affordable to low-income families
Both agencies were created with the public mission to “enhance the liquidity and stability of the U.S. secondary mortgage market,” so supporting rent reporting, in addition to affordable housing goals, is right on target.
Fannie Mae Low-Income Purchase Goals
Fannie Mae is tasked with meeting the following low-income purchase goals for 2023 and 2024:
- 61% of Fannie’s multifamily mortgage purchases must be affordable to families with incomes of 80% or less of area median income.
- 12% of Fannie’s multifamily mortgage purchases must be affordable to families with incomes of 50% or less of area median income.
- 2% of Fannie’s purchases of mortgages for five- to 50-unit properties must be affordable to families with incomes of 80% or less of area median income.
Freddie Mac Low-Income Purchase Goals
Like Fannie Mae, Freddie Mac is tasked with meeting the following low-income purchase goals in 2023 and 2024:
- 61% of Freddie’s multifamily mortgage purchases must be affordable to families with incomes of 80% or less of area median income.
- 12% of Freddie’s multifamily mortgage purchases must be affordable to families with incomes of 50% or less of area median income.
- 2% of Freddie’s purchases of mortgages for five- to 50-unit properties must be affordable to families with incomes of 80% or less of area median income.
How Can Rent Reporting Help Small Investors?
Rent reporting can help small owners and investors in different ways, such as by:
- Encouraging on-time rent payments. When subject to rent reporting, tenants have an even greater incentive to pay on time and in full.
- Attracting responsible tenants. The kind of desirable tenants who benefit from rent reporting—those who pay on time and in full—will also typically be the ones who are attracted to properties that offer rent reporting.
- Supporting financial inclusion. Property owners who offer rent reporting can help individuals build (or rebuild) credit, thereby broadening access to financial services.
Just as rent reporting can help small investors, so too can Lument’s “Leap to Loans” search tool. With Leap to Loans, small investors can obtain near-instant quotes for small-balance multifamily loans; the tool also offers market intelligence on neighborhoods, rents, sales comparisons, demographics, and other useful indicators.
Frequently Asked Questions
Is it worth it to report rent to credit?
It’s generally worth it to have your rent reported to a credit bureau if you make your monthly payments on time and in full.
Does rent reporting increase credit scores?
Rent reporting can help increase your credit score over time if you make your complete monthly payments when they come due.
Leap to Loans
Lument’s Leap to Loans search tool offers investors an immediate quote for a $1M–$9M loan on any multifamily property. Using Leap to Loans could not be easier, either: Simply type in the address, answer a few questions, and then receive loan amounts, terms, and market insights.
A quote for your next multifamily investment is just seconds away. Simply type in the property address and let us do the rest!
