In recent years, Freddie Mac and Fannie Mae (the government-sponsored enterprises, or GSEs) have implemented test-and-learn rent reporting pilots to help renters in multifamily properties “establish, maintain, and improve their credit scores.” These pilots, launched in 2021 and 2022, aim to help renters with low incomes and Black and Latinx renters build credit histories, as these groups are more likely to be credit constrained (PDF), less likely to have credit scores, and more likely to have lower median credit scores than higher-income white Americans.
Combined, the pilots have reported 903,000 renters enrolled through 2023, illustrating the GSEs’ power to catalyze change at scale. The size of this initiative, which will continue growing throughout 2024, dwarfs that of any other rent reporting program, combination of programs, and credit bureau simulations of rent reporting’s impacts on credit scores.
With both pilots scheduled to wrap up at the end of 2024, however, I believe the GSEs can be more transparent about the effectiveness of the pilots and, as such, offer some questions I hope they will answer in their end of pilot reporting data.
What we know about the rent reporting pilots
In both the test-and-learn pilots, newly funded multifamily owner-operators who volunteer to participate contract with one of six GSE-approved third-party technology platforms. The platform will then recruit and enroll residents, verify timely rent payments, and transmit information to the credit bureaus, with the GSEs picking up the tab for a year’s worth of reporting to encourage sign-ups and to ensure the fee is not passed on to tenants.
Although both GSEs provide selective annual performance data, they are not required by the Federal Housing Finance Agency (FHFA) to provide detailed impact reporting and data transparency, making it difficult to compare outcomes or estimate GSE-wide performance metrics. From the GSEs’ self-assessments, we know that more than 903,000 renters have had on-time rental payments reported during the pilot period. Further, we can approximate overall coverage by referring to the GSEs’ respective Securities and Exchange Commission filings (PDF). In 2022–23, the GSEs combined to fund 2.2 million new multifamily units, suggesting that owners of about one in three units have had at least one resident participate in a rent reporting pilot.
The GSEs’ self-assessments also show that, combined, more than 421,000 renters with an existing credit score saw their score improve through the program. Freddie Mac’s pilot was more effective on this front, however, with 70 percent of renters experiencing a credit score improvement compared with 37 percent in Fannie Mae’s pilot. The pilots also helped initiate credit footprints for thousands of renters, with 55,000 establishing a credit score through Freddie Mac’s pilot and 28,000 establishing a credit history through Fannie Mae’s.
Curiously, both GSEs’ 2023 performance reports are silent on the magnitude of credit score increases among those who saw their existing scores rise. Fannie Mae’s 2022 report did indicate that renters with an existing score who saw an improvement had an average boost of 45 points, but that number includes only “those with an existing score whose existing score increased.” Although this wordsmithing is opaque, Fannie Mae does note in its 2023 performance report that “positive rent payment reporting does not guarantee an increase in credit score” and that rent reporting is just “one component that can contribute to a consumer’s credit score.”
Lastly, both GSEs show significant program participation in census tracts where at least half of the residents are people of color. Since the GSEs do not collect demographic data on participating residents, neighborhood-level racial and ethnic attributes are the next-best proxy. What the GSEs leave unsaid, however, is how much improvements in credit score–related outcomes vary between neighborhoods with higher and lower concentrations of people of color.
What the GSEs should tell us about rent reporting
With the GSEs set to issue their final assessments at the end of the year, both pilots have much to prove to meet the GSEs’ stated ambitions and confirm the power and limitations of on-time rent reporting as a credit-building tool and instrument to improve racial equity in America’s credit markets.
To improve transparency in pilot performance reporting, we urge the GSEs to design their final assessments more strategically, the FHFA to impose more consistent reporting requirements, and policymakers to consider sponsoring a robust follow-on research program. At a minimum, we propose the GSEs address the following eight issues in their final assessments.
- Given the widely held belief that “rental payment reporting across the multifamily industry can help Black and Latinx renters with no credit score establish a credit history and help those with low credit scores to increase them,” the GSEs should fully describe credit score–related outcomes and any differences across participants and nonparticipants, as well as across properties in neighborhoods with varying concentrations of people of color.
- The GSEs should report the full range of rent reporting outcomes in properties of varying affordability levels, including take-up rates, opt-out rates, credit scores created, and changes in credit scores.
- Did performance metrics vary across the six rent reporting vendors included in the pilots?
- Most rent reporting approaches allow consumers to opt out of the program. Two of Fannie Mae’s vendors, Jetty and Entrata, employ both opt-in and opt-out rent reporting systems. If either or both vendors used opt-in designs in Fannie Mae’s pilot, did participation rates or other outcomes of interest vary between the two approaches?
- What were the initial opt-out and disenrollment rates for the pilot, and how did these vary by property affordability levels and neighborhood racial and ethnic composition?
- To the extent a rent reporting vendor offered participants ancillary services such as reporting up to 24 months of previous on-time payments, emergency rent loans at 0 percent interest, or budgeting solutions, what were take-up rates for each of these services, in what affordability levels were they concentrated, and what effect did they have on rent payment patterns?
- Since the GSEs pay for only a year of rent reporting, what trends have emerged in continuation rates? Who bears the costs of continuing, and do patterns differ by property type and market segment?
- What caused the large differences in credit record improvement between the GSEs? There are many potential explanations, so it is important to fully analyze all these possibilities.
Because neither pilot collects demographic data or tracks the credit-related behavior of participants and nonparticipants over time, none of the credit-related behavioral hypotheses of on-time rent reporting can be tested. Here, the FHFA can help in three ways. First, the FHFA should not leave it up to the GSEs as to how they frame their final assessments and what data are released. A full and accurate accounting will require uniformity in the key questions and issues that their final assessments address and the data they release to the public.
Second, the FHFA should issue a request for public input for researchers to design studies on the rent reporting pilots. Taken together, the GSEs’ rent reporting vendors can draw a representative sample of data necessary to design a longitudinal study enabling a wide range of behavioral propositions about the power of on-time rent reporting.
Lastly, the FHFA should encourage each GSE to survey its participating owners and operators to test whether rental property owners see on-time rent reporting as an added amenity for their residents or whether residents will drive adoption. The more the GSEs can establish the case for rent reporting, the more likely the innovation will outlast its subsidies.
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