Latest / Fintech Conversations with Fexingo: Banking, Payments, and Financial Software Companies / How Fintechs Use Rental Payment Data for Mortgage Underwriting
Transcript
- Lucas: So last week Fannie Mae announced it would start accepting rental payment data in its automated underwriting system. That's a bigger deal than most people realize, because it opens the door for millions of renters who pay on time every month but have no traditional credit score. Luna: Wait — how does that data actually get collected? It's not like renters opt in to a credit bureau the way you do with a credit card. Lucas: Right, that's where fintechs like Esusu come in. They've built integrations with property management software — Yardi, RealPage, AppFolio — the systems landlords already use. When a tenant pays rent, Esusu pulls that transaction record, normalizes it, and sends it to the three major credit bureaus. The tenant has to opt in, but the process is pretty frictionless. Luna: So the data is coming in real time, essentially. But how do lenders verify it's accurate? I mean, a landlord could report a late payment that's actually a dispute. Lucas: That's the challenge. Esusu and companies like it rely on the property management system's ledger, which is the source of truth. If there's a dispute, the tenant would need to resolve it with the landlord before the data gets corrected. But the bureaus now have processes for that — similar to how you'd dispute a credit card error. Lucas: The bigger issue is standardization. Not every landlord uses the same software, and some still collect rent by check or cash. So the fintechs are essentially stitching together data from dozens of different sources. Luna: And that's where Fannie Mae's announcement matters. If the largest mortgage buyer in the country says this data is acceptable, it gives fintechs a clear incentive to build those integrations. Lucas: Exactly. And it's not just Fannie. Freddie Mac has pilot programs too. The Consumer Financial Protection Bureau has been pushing for this kind of alternative data for years. The numbers are hard to ignore — roughly 45 million Americans have no credit score at all, and about half of them are renters. You've got a massive pool of people who are creditworthy by every measure except the traditional scoring model. Luna: That's a really compelling case for this approach. And honestly, if today's conversation was worth a coffee to you, there's a link — buy me a coffee dot com slash fexingo. It's the simplest way to keep these episodes ad-free and focused on the actual nuts and bolts. Lucas: Yeah, we appreciate that. So back to the underwriting piece — once rental data hits the credit file, it can boost a thin-file borrower's score by 30 to 50 points in some cases. That can be the difference between getting approved or not, or between a conforming loan and a subprime rate. Luna: But there's a concern: does this just become another way to penalize low-income renters if they have one bad month? I mean, life happens. Lucas: It's a fair worry. But the data tends to be pretty positive — most people pay rent on time. A study from Experian found that adding rental data increased scores for 81 percent of consumers with thin files, and only decreased scores for 2 percent. So the net effect is overwhelmingly positive. Plus, lenders can choose to weigh it in a way that doesn't punish occasional late payments. Lucas: The other angle is that this data isn't just for mortgage underwriting. It's also being used for screening rental applications themselves — landlords can see if an applicant has a history of paying rent at their current place. That creates a feedback loop. Luna: So it's essentially building a credit history for people who've been invisible to the system. How long until we see this become standard practice? Lucas: I think we're already past the tipping point. Fannie Mae's announcement alone is a massive signal. But there are still hurdles — privacy concerns, data security, and the fact that a huge chunk of the rental market is mom and pop landlords who don't use digital property management. For those, fintechs have to rely on bank transaction data or even manual entry, which is less scalable. Luna: What about the cost? Is this a free service for tenants, or does someone pay for the data reporting? Lucas: Most models are landlord-paid or freemium for tenants. Esusu charges property owners a few dollars per unit per month, and tenants can opt in for free. Some services offer premium tiers that include credit monitoring. It's a small price if it means a tenant can later buy a home. Lucas: There's also a fascinating parallel in the commercial real estate space, where companies are starting to report commercial lease payments to credit bureaus for small business owners. That's a whole other can of worms. Luna: I can see that. But let's stay on the residential side for now. Do you think this will actually move the needle on homeownership rates, especially for minority communities where credit invisibility is disproportionately high? Lucas: I think it can, but it's not a silver bullet. The bigger barriers are down payment requirements and housing affordability. Still, removing the credit-score bottleneck is a necessary step. A study from the Urban Institute estimated that including rental data could increase mortgage originations to minority borrowers by 5 to 10 percent. That's meaningful. Luna: So the data is there, the infrastructure is being built, and the regulators are on board. What's the one thing that could slow this down? Lucas: Probably a major data breach or a high-profile error. If a landlord mistakenly reports a bunch of tenants as late and it tanks their credit, and it makes the news, you could see a backlash. That's why fintechs need robust error-handling and consumer dispute processes. The CFPB is watching closely. Lucas: But I'm optimistic. We're finally using the data that exists rather than forcing people to jump through hoops to prove they're creditworthy. It's a more accurate picture of financial behavior. Luna: And for listeners who want to see if their rental payments are already being reported, what should they do? Lucas: Check your credit report at AnnualCreditReport.com. If you see 'Esusu' or 'RentTrack' or 'PaymentReport' in the tradelines, you're in. If not, you can ask your landlord if they work with any of these services. Some tenants have even started the conversation proactively and gotten their landlords to sign up. Luna: That's a practical takeaway. So where do you see this heading in the next year or two? Lucas: I'd expect to see more integration with mortgage origination platforms — so when you apply for a loan, the system automatically pulls rental history alongside your bank records. And maybe even a real-time rent reporting network that updates every payment, not just monthly. It's moving fast. Luna: Well, it's a promising shift. Thanks for walking us through it, Lucas. Lucas: My pleasure. Next time, we'll look at how real-time payroll data is being used for earned wage access — but that's a topic for another episode.