Mortgage

Freddie Mac, Serena Williams-linked fintech helps tenants construct credit score

Government-sponsored Freddie Mac is working with a high profile startup affiliated with tennis star Serena Williams to provide positive information about tenant payments to the credit bureaus.

The partnership with Esusu Financial, which the athlete's venture capital company invested in earlier this year, could help tenants build credit histories, expand their housing options, improve loan performance, and incentivize lending. Both Freddie and his competitor Fannie Mae, who buy up a significant portion of all mortgages in the United States, have been looking for ways to do more to help consumers more with thin credit files. Less than 10% of the 44 million tenants in the market receive rental payments credited to the score.

Esusu, which raised $ 10 million in a Series A funding round in July, will work with Freddie to provide homeowner rental information to three major credit bureaus: Experian, Equifax and TransUnion. According to Alexis Sofyanos, Freddie's senior director of equity in apartment buildings, property owners pay the data transfer performed by Esusus' platform through a small fee that is offset by benefits such as a closing expense credit and potentially improved tenant payments.

“It's $ 1.50 per unit per month and that's what the operator or property manager bills, not the tenants. We didn't think that would be our goal, ”Sofyanos said in an interview. Freddie has negotiated a service fee with the startup that is lower than what the technology provider usually charges, she added.

Freddie also noted that investing in Esusu's platform can pay off for borrowers as it makes it easier for property owners to market, retain and collect tenants, Sofyanos said.

"We hear from the borrowers who have worked or committed to Esusu that they see better rental collections," she said. "These services inherently incentivize tenants to pay on time and in full each month because they know they will get credit for them, and if the property next door doesn't offer these services, a tenant is likely to stay." Lower sales and marketing costs for the property owner.

Freddie worked with a group of multi-family borrowers in the high single digits last year to expand use of Esusu to over 11,000 units, she said. A trial of the Freddie and Esusu partnership has been underway since the beginning of this year, and November 3rd marks the official start of the wider rollout.

Renters who chose Esusu have improved their credit scores by an average of 26 points, Sofyanos said.

"Most notably, 1,800 credits have been created for previously bad tenants in these properties," she added, noting that this helps both younger people and students who may not have a credit history. It can also help older tenants who are less active as borrowers and who may have a stagnant credit history. The service is available for all types of Freddie Mac multi-family loans.

While some efforts to reach consumers with no traditional credit history have drawn criticism out of concern over potentially increased reporting of negative or inaccurate information, the Esusu partnership aims to ensure that only on-time payments are reported, Sofyanos said.

"We understand that especially in today's environment there are vulnerable tenants who could be at risk from missing payments or late payments," she said. "If you miss a payment or a payment is incomplete, you will be automatically logged off from these services."

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