New program would bring rent into mortgage calculation; could help low-income Americans move to home ownership

ANNAPOLIS, MD – A company is poised to offer a service that will allow renters to begin to muster their rental history in establishing credit that they can use when applying for mortgages, auto loans, credit cards and other personal loans. Currently, although a renter might faithfully make their rent payments on time and in full month after month, there is no way to include that payment record in building a credit history that might qualify them for different types of credit. But Michael Nathans, project director for Annapolis-based Pay Rent, Build Credit (PRBC) said his firm’s new program would change that, enabling renters to begin collecting their rent payment histories into a form that financial institutions and other lenders can use to qualify them for loans. Enabling landlords and rental management firms to use lockboxes at financial institutions to collect their rents is the key to PRBC’s approach, Nathans said. Lockbox services at financial institutions allow the renters to make their rent payments directly into the landlord’s account, either by physical check or by direct electronic deposit. The financial institution then reports to the landlord and the PRBC how much rent the renters had paid and when. In order to protect privacy, the financial institution assigns a random code to each rent account so that when it reports to the landlord and PRBC it does not know the renters name or address. “Everybody wins in this product,” Nathans said. Renters like it because it helps them turn what had been almost exclusively a financially unproductive payment into something that they could use to help them plan for the future, he noted. Landlords like it because it simplifies their rental collection process and streamlines it. Financial institutions like it because it helps them enhance their lockbox services and offer their members and customers an additional incentive for using the service. Landlords will also additionally appreciate the product because it will help them attract more conscientious renters and improve the payment habits of the renters they already have, Nathans explained. Nathans has experience as both a landlord and a building manager and said that having an opportunity to add rental history to their credit history will attract renters who are oriented toward building wealth and will make renters more aware of making their rent payments on time to help build their credit history. Because PRBC will draw the majority of its customers from among low-income populations, which make up the bulk of the 32 million renters nationwide, Nathans said, the company figured out early that is was in their interest to help low-income people start bank/CU accounts where they could have their paychecks deposited directly and from which they make electronic rent payments. “We have been doing financial education since we got underway two years ago,” Nathans said. “There are a lot of cultural barriers to starting a relationship with a financial institution, among immigrants in particular and low-income people generally. But we find the opportunity provided by our program can make starting a relationship with a financial institution more attractive,” he said. PRBC will make its money from subscriber fees, in much the same way the credit reporting bureaus do. Once it’s up and running, Nathans looked forward to a time when a subscriber could ask for the rent information to be included in a credit report and how, with the push of a button, the credit bureau could get that information from PRBC, a situation Nathans admitted was still in the distant future. The immediate future includes a formal launch of the program in certain cities that is scheduled for early 2003, he said. Because it is not yet in place no mortgage providers were willing to speak definitively about the product for the record. But Fannie Mae confirmed that they were looking at the product and had had an interest in the past in finding ways to include “non-traditional” data in calculating credit histories and scores. Ed Jacob, whose $7 million North Side Community Credit Union, based in Chicago, doesn’t write many mortgages, nonetheless said that people underestimate how much difference a little good information can make in a credit history. “On the whole I think this is a very good thing that could help a lot of people,” he said. [email protected]