Freddie Mac, Serena Williams-linked fintech help renters build credit

Government-sponsored enterprise Freddie Mac is partnering with a high-profile startup connected with tennis star Serena Williams to help transmit positive information about renters’ payments to the credit bureaus.

The partnership with Esusu Financial, which the athlete’s venture capital firm invested in earlier this year, could help renters build credit histories, broadening their housing options, improving loan performance and incentivizing originations. Both Freddie and its competitor, Fannie Mae, which purchase a significant number of all mortgages made in the United States, have been investigating ways to do more to serve consumers with thin credit files. Less than 10% of the 44 million tenants in the market receive credit for rent payments in their scores.

Esusu, which received $10 million through a Series A funding round in July, will work with Freddie to help transmit information about property owners’ rental payments to the three main credit bureaus: Experian, Equifax and TransUnion. Property owners will pay for the data transmission made by Esusu’s platform through a small fee, which is offset by benefits that include a closing cost credit and, potentially, improved tenant payments, according to Alexis Sofyanos, Freddie’s senior director of equity in multifamily housing.

“It’s $1.50 per unit, per month, and that’s charged to the operator or property management, it is not charged to the renters. We did not think that that would be in the spirit of what we were trying to accomplish,” Sofyanos said in an interview, noting that Freddie did research and investigated different options before deciding to work with Esusu for the time being. Freddie negotiated a service fee with the startup that’s lower than what the technology vendor typically charges, she added.

Freddie also found investment in Esusu’s platform can pay off for borrowers because it makes it easier for property owners to market to, retain and collect from tenants, said Sofyanos.

“We are hearing from the borrowers who have been working or engaging with Esusu that they are seeing better rent collection,” she said. “These services inherently incentivize renters to pay on time and in full every month, because they know that they're getting credit for doing so, and if the property next door doesn’t offer these services, a tenant is likely to stay.” This could lower turnover and marketing costs for the property owner.

Freddie worked with a group of multifamily borrowers in the high single digits during the past year to extend Esusu use to over 11,000 units, she said. A test version of the partnership between Freddie and Esusu has been underway since earlier this year, and Nov. 3 marks the official start of its broader rollout.

Renters who opted to use Esusu have seen their credit scores increase by 26 points on average, Sofyanos said.

“More notably, it created 1,800 credit scores for previously credit-invisible renters in these properties,” she added, noting that this helps both younger people like students, who may not have established credit histories yet. It also may help older renters who are less active as borrowers and may have stagnant credit histories. The service is available for all types of Freddie Mac multifamily loans.

While some efforts to reach consumers who lack traditional credit histories have drawn criticism out of concern about potential increased reporting of negative or inaccurate information, the Esusu partnership is designed to ensure only on-time payments get reported, Sofyanos said.

“We do understand that, especially in today's environment, that there are vulnerable renters who may be at risk for missing payments or having late payments,” she said. “When they miss a payment or a payment is incomplete, they are automatically unenrolled from these services.”