PD&R Edge

Updated Analysis on Positive Rental History

Wenzhen Lin and Jeffrey Perry, Housing Finance Analysis Division, Office of Policy Development and Research

Summary

A row of single family homes with stairs and a sidewalk in front.

The inclusion of Positive Rental History (PRH) in the FHA TOTAL Mortgage Scorecard has significantly expanded automated underwriting, allowing over 6,000 endorsements that would have previously required manual review to be accepted through TOTAL.

Since October 30, 2022, positive rental history (PRH) has been included as an element of the Federal Housing Administration's (FHA's) Technology Open to Approved Lenders (TOTAL) Mortgage Scorecard, and since March 25, 2023, HUD has required lenders to report it. FHA incorporated PRH into TOTAL to increase credit access for first-time homebuyers with a demonstrated history of on-time rent payments, which generally are not reflected in credit scores. As of August 31, 2024, 6,060 endorsements that otherwise would have required manual underwriting were accepted through TOTAL because of PRH. On average, these borrowers were more likely to be first-time homebuyers, have less wealth, and be Black or female. Although the available time for performance observation is limited, those PRH borrowers, on average, have lower 60-day and 90-day delinquency rates. This analysis extends the findings from our previous PD&R Edge article on PRH by using an additional year of data through August 2024.

Background

PRH is applied to a borrower's TOTAL when borrowers demonstrate on-time rent payments of at least $300 per month for the previous 12 months. To qualify, at least one borrower must meet this condition, and the loan must satisfy the following criteria:

The transaction is a purchase.
At least one borrower is a first-time homebuyer.
The minimum decision credit score is 620.

Fannie Mae and Freddie Mac have integrated PRH into their underwriting processes since September 2021 and July 2022, respectively.

FHA incorporates PRH into the TOTAL decision by reducing the threshold for acceptance for applicants with positive rental history. Research supports this approach, showing that rent payments can boost credit scores for those who make timely payments. A recent study found that, for tenants of public housing agencies, including positive rental payment data increased credit scores for approximately 90 percent of tenants and increased credit scores by more than 20 points for approximately 50 percent of tenants. Another report found that including positive rental payments of affordable housing tenants increased credit scores by an average of 23 points.

PRH Acceptance Trends and Patterns

TOTAL began to accept mortgages qualifying through PRH after October 30, 2022, but PRH endorsements were very low until lenders were required to report them after March 25, 2023. Figure 1 shows endorsement counts with and without PRH. The figure shows that more than half of the loans just below the standard acceptance threshold X were endorsed because of PRH. The incorporation of PRH into the TOTAL scorecard lowered the acceptance threshold for PRH mortgages, moving it from X to X-β, where PRH mortgages within this range are called PRH endorsements. By August 31, 2024, 6,060 endorsements received an "accept" decision because of PRH. The count of endorsements that qualified through PRH, between the PRH threshold X-β and the standard threshold X, remains lower than the count of PRH endorsements that were already above the standard threshold (see Figure 2). Figure 3 shows the share of purchase endorsements accepted through PRH. The figure shows that the share of endorsements was about 0.2 percent in March 2023 and rose to 0.7 percent in August. The share of loans endorsed through PRH has stabilized above 0.7 percent, reaching 0.8 percent by the end of August 2024.

Figure 1. Counts of Endorsements With and Without Positive Rental History

Figure 1: Bar graph depicting counts of endorsements with and without Positive Rental History.

Source: Single Family Housing Enterprise Data Warehouse, mortgages with and without positive rental history endorsed Oct 30, 2022, and later.
Note: X represents the threshold for an accept decision under TOTAL, and X-β represents the new threshold under PRH. The bars represent the number of mortgages within each TOTAL score increment.

Figure 2. Counts of Purchase Endorsements With Positive Rental History Near the Threshold

Figure 2: Bar graph depicting counts of purchase endorsements with Positive Rental History near the threshold.

Source: Single Family Housing Enterprise Data Warehouse, mortgages with positive rental history endorsed Oct 30, 2022, and later.
Note: X represents the threshold for an accept decision under TOTAL, and X-β represents the new threshold under PRH. The bars represent the number of mortgages that have a positive rental history within each TOTAL score increment.

Figure 3. Share of Purchase Endorsements Accepted Through Positive Rental History

Figure 3: Line graph depicting the share of purchase endorsements accepted through Positive Rental History.

Source: Single Family Housing Enterprise Data Warehouse, mortgages endorsed Oct 30, 2022, and later.

Borrower and Loan Characteristics Analysis

Table 1 outlines the characteristics of borrowers and loan characteristics for purchase mortgage endorsements from October 30, 2022, and later. Column 1 presents the summary statistics for purchase loans that were manually underwritten, and columns 2 through 5 pertain to purchase loans that were accepted through TOTAL. The data show that borrowers who were accepted because of PRH (column 2) have different characteristics from those for all borrowers accepted through TOTAL (column 5). Those borrowers exhibit a higher proportion of first-time homebuyers, smaller mortgage amounts, and slightly higher loan-to-value ratios compared with all purchase loans. These borrowers also hold significantly fewer assets and have lower annual incomes. When comparing borrowers accepted because of PRH (column 2) to those just above the threshold (column 3), we observe that FICO scores, loan-to-value ratios, annual incomes, and back-end debt-to-income (DTI) ratios are similar.

Table 1: Summary Statistics of Purchase Endorsements by TOTAL Score Category

Characteristics	Manually Underwritten	PRH [X-β, X)	[X, X+β)	[X+β, …)	All Loans
Age	39.59	38.87	37.7	37.84	37.89
FICO	641.9	640.3	640.6	685.3	679.2
Positive Rental History (%)	15.80	100	10.40	9.29	10.14
First Time Buyer (%)	85.65	96.30	89.95	81.49	82.55
Loan to Value Ratio (%)	94.52	96.04	95.79	94.34	94.50
Back End Ratio (%)	41.19	45.98	46.29	45.24	45.21
Borrower Assets ($)	29,680	14,901	19,225	37,767	35,543
Annual Effective Income ($)	82,157	76,815	78,015	103,185	99,835
Original Mortgage Amount ($)	233,953	256,502	257,562	316,111	307,152
Loan Count	39,177	6,060	105,136	928,061	1,077,434

Source: Single Family Housing Enterprise Data Warehouse, purchase endorsements from Oct 30, 2022 to Aug 31, 2024.
Note: X represents the threshold for an accept decision under TOTAL, and X-β represents the new threshold under PRH.

Figures 4 through 6 illustrate the distributions of FICO scores, income, and DTI ratios within the ranges [X - β, X] and [X, X + 2β] around the cutpoint X, where the range [X - β, X] corresponds to borrowers accepted due to PRH. Notably, the figures show that PRH borrowers who are slightly below the cutoff point have higher FICO scores, higher incomes, and lower DTI ratios than those just above the cutoff point. This pattern shows that adding PRH to the TOTAL scorecard helps identify borrowers who don't meet the standard criteria but still have strong financial characteristics. By including PRH, FHA can expand credit access without raising risk.

Figure 4: FICO Score Distribution Around the Cutoff Point

Figure 4: A scatter plot depicting the FICO score distribution around the cut-off point.

Source: Single Family Housing Enterprise Data Warehouse, mortgages with and without positive rental history endorsed Oct 30, 2022, and later.
Note: X represents the threshold for an accept decision under TOTAL, and X-β represents the new threshold under PRH. Each dot represents the average FICO score within each TOTAL bin.

Figure 5: Annual Income Distribution Around the Cutoff Point

Figure 5: A scatter plot depicting the annual income distribution around the cut-off point.

Source: Single Family Housing Enterprise Data Warehouse mortgages with and without positive rental history endorsed Oct 30, 2022, and later.
Note: X represents the threshold for an accept decision under TOTAL, and X-β represents the new threshold under PRH. Each dot represents the average annual income within each TOTAL bin.

Figure 6: DTI Distribution Around the Cutoff Point

Figure 6: A scatter plot depicting the DTI distribution around the cut-off point.

Source: Single Family Housing Enterprise Data Warehouse, mortgages with and without positive rental history endorsed Oct 30, 2022, and later.
Note: X represents the threshold for an accept decision under TOTAL, and X-β represents the new threshold under PRH. Each dot represents the average DTI ratio within each TOTAL bin.

Race and Ethnicity Distribution

Table 2 compares the racial and ethnic distribution of borrowers by TOTAL Score category. Borrowers accepted due to PRH had a higher proportion of Black borrowers (18.6%) than did all TOTAL-approved borrowers (12.4%). Moreover, compared with borrowers just above the cutoff point (column 3) and those accepted through manual underwriting, the share of Black borrowers is about 2 percentage points higher. For Hispanic borrowers, the share accepted due to PRH (18.07%) is similar compared with those just above the standard cut point (18.30%) and all purchase loans (18.44%).

Table 2: Race and Ethnicity of Purchase Endorsements by TOTAL Category

Race (%)	Manually Underwritten	PRH [X-β, X)	[X, X+β)	[X+β, …)	All Loans
Black	16.05	18.63	16.59	11.74	12.41
Hispanic	12.17	18.07	18.30	18.72	18.44
White	39.28	31.44	32.92	35.10	35.01
Other	1.64	1.88	1.81	3.09	2.90
Missing	30.86	29.98	30.38	31.35	31.23
Total	100	100	100	100	100

Source: Single Family Housing Enterprise Data Warehouse purchase endorsements from Oct 30, 2022, and later.
Note: X represents the threshold for an accept decision under TOTAL, and X-β represents the new threshold under PRH. Race of the primary borrower is used.

Gender Distribution

Table 3 presents the gender distribution of borrowers. Borrowers accepted because of PRH (column 2) have a higher proportion of female borrowers (37.56%), which is approximately 4 percentage points higher than the proportion among all TOTAL-approved borrowers in column 5. The share of borrowers accepted due to PRH who are female is also 2 percentage points higher compared with those just above the threshold (column 3) and borrowers accepted through manual underwriting (column 1).

Table 3: Gender of Purchase Endorsements by TOTAL Category

Gender (%)	Manually Underwritten	PRH [X-β, X)	[X, X+β)	[X+β, …)	All Loans
Male	38.72	37.66	39.47	41.18	40.91
Female	35.86	37.56	35.71	32.94	33.34
Unknown	25.42	24.79	24.83	25.88	25.75
Total	100	100	100	100	100

Analysis of PRH Impact on Delinquency Rates

Figures 7 and 8 present the 60-day and 90-day delinquency rates by PRH category. The data indicate that borrowers accepted through PRH tend to have lower delinquency rates compared with those just above the cut point, particularly for loans just below the acceptance threshold. However, the limited observation period means that it is too early to draw definitive conclusions about PRH's long-term impact on loan performance.

Figure 7: Ever 60-Day Delinquency Rate by PRH Category

Figure 7: A scatter plot depicting the 60-day delinquency rate by PHR category.

Figure 8: Ever 90-Day Delinquency Rate by PRH Category

Figure 8: A scatter plot depicting the 90-day delinquency rate by PHR category.

Conclusion

In conclusion, this study observed four main impacts. First, PRH has meaningfully expanded automated underwriting, with more than 6,000 endorsements that would have required manual review being accepted through TOTAL, and the share of FHA purchase mortgages approved using PRH reached approximately 0.7 percent by August 31, 2024. Second, PRH has fostered greater borrower diversity; those approved through PRH tend to be first-time homebuyers with lower wealth and income levels, taking on smaller mortgages with slightly higher loan-to-value ratios. Third, demographic trends reveal that PRH-accepted borrowers are more likely to be Black and include a higher proportion of female borrowers. Finally, despite limited data, early indicators suggest that these borrowers maintain slightly lower rates of 60- and 90-day delinquency compared with mortgages just above the acceptance threshold.