On-Time Reporting Is Catching On
Lew Sichelman on the growing consensus that the practice is a win-win for renters, owners and lenders.
At a time when more and more landlords are reporting rent payments to the three major credit repositories, a major bipartisan housing think tank is suggesting ways policymakers in Washington can persuade even more property owners to jump on the bandwagon.
Currently, fewer than 5 percent of all rental households have their rental payment histories on file with the three major credit reporting agencies: TransUnion, Equifax and Experian. When it is reported, moreover, it is for missed rather than on-time payments.
But the Urban Institute says one way to increase participation would be to incentivize landlords by offering property owners closing cost credits on their financing.
Caitlin Young, an analyst in UI’s Housing Finance Policy Center, also suggests encouraging lenders to accept consumer-permissioned data and clarifying consumer protections regarding the use of alternative data as ways to increase the use of rental histories.
The goal, of course, is to increase the rate of homeownership, especially among minorities. After all, rental payments have been shown, time and again, to be strong predictors of mortgage performance, according to Young.
Traditionally, rent is not considered in mortgage underwriting, largely because payments are not reported and, therefore, not reflected in credit scores.
But the idea of “paying” landlords to do so holds credence here. Otherwise, there is no incentive to absorb the extra cost, especially when the final result could be losing a good-paying resident to the ranks of homeowners.
More on that later. First, it should be noted that Fannie Mae and Freddie Mac, both major multi-family lenders, recently established pilot programs to induce the reporting of rent payments for the owner-operators of the apartment properties they finance.
Under the GSE programs, lenders receive closing cost credits on their loans in exchange for agreeing to report on-time payments. And the Federal Housing Administration recently updated its underwriting protocols to allow lenders to consider 12 months of on-time rent payments.
Public Benefits of Reporting
But the Urban Institute says national, state and local agencies operating in the public housing space should pilot similar programs, and has called on regulators and lawmakers to encourage them to do so.
The test programs could be used to, among other things, determine effective ways to increase consumer awareness, Young says.
Meanwhile, there is new evidence that 36 percent of property managers who are aware of their ability to report on-time payments now do so. That, according to research from TransUnion, is a 37 percent increase from a year ago.
Nearly half of those who now report rent payments only began doing so in 2022, TransUnion found. The main reasons: helping residents build their credit scores and encouraging them to pay on-time.
When asked why they don’t report, one-third said they were still in the process of setting up payment reporting programs or already doing so through third-party vendors other than TransUnion. And when asked what would convince the naysayers to report, 85 percent said they’d be somewhat likely to do so if it meant attracting tenants who pay on time.
On that latter point, TransUnion found that a majority of tenants would be more likely to sign on at places where their payments are reported. And a whopping 82 percent said they’d be more likely to pay on time if their payments were reported.
The report is based on a small sample of 150 property management TransUnion customers from mid- and large-size projects covering 3,301 tenants. But TransUnion’s Maitri Johnson still called the trend “exciting.”
“The findings illustrate that the property manager-tenant relationship is more than transactional,” said the repository’s vice president of tenant and employment screening. “Most property managers who report rent payments are doing so to help their residents improve their financial futures.”
Johnson says she’s seeing “a change in perspective” among property mangers who see rent reporting as a “new amenity” that can not only support good payment behavior but also prove valuable in tenant acquisition.
“Having rent payments reported is an attractive option for most renters, so property managers who participate should really leverage that benefit in their advertising and highlight it in their lease agreements,” said Johnson.
“Property managers who are on the fence should understand that the practice is a win-win for both parties, as it attracts responsible renters and rewards them for on-time payments.”