The letter, signed by MBA’s Associate Vice President of Government Housing Finance, Brendan Kelleher, is addressed to the Deputy Assistant Secretary for Single-Family Housing at HUD and was sent on the last date for comments set by the FHA.
The MBA wrote that while it appreciates that FHA is looking into BNPL debt and its rapid growth, it has several recommendations based on concerns that BNPL debt could impact homebuyers’ ability to qualify for FHA loans and FHA’s ability to manage financial risk.
BNPL providers, such as Affirm, Klarna and AfterPay, offer short-term financing options that allow consumers to make payments on purchases over time in installments. The popularity of BNPL shopping has risen in recent years, the MBA wrote, citing that the number of BNPL users in the United States is expected to increase from 82.1 million in 2023 to 112.7 million by 2027.
But the short-term financing options come with risk. Many users face repayment challenges or make late payments that accrue interest. BNPL use can increase debt-to-income ratios (DTI) and, since BNPL debt doesn’t show up on credit reports, presents itself as an underwriting fiasco, making it harder to understand a borrower’s true financial status.
The recommendations include the FHA establishing a clear, standardized definition of BNPL debt to “help lenders determine which obligations should be evaluated under BNPL guidance.” MBA also encourages FHA to develop stringent standardized reporting guidelines and to test those guidelines to ensure they are workable before finalizing.
MBA also outlined a need for FHA to streamline data reporting to ensure debts are visible in underwriting, factored into automated underwriting system (AUS) decisions, help consumers build credit and reduce lender workload with consistent DTI calculations.
The MBA also outlined policy recommendations that include the FHA adopting interim underwriting guidance and publishing “a non-exhaustive list of common BNPL providers that may appear on bank or credit card statements.”
In June, Fair Isaac Corp. (FICO) announced that it will incorporate BNPL data into FICO Score 10 BNPL and FICO Score 10 T BNPL, which are set to launch this fall.