A Manhattan tenant faithfully paying the record median rent of nearly $5,300 each month, not once falling behind over several years, wants to apply for a mortgage. Should they do so with an equivalent or even lower monthly obligation, banks will routinely reject the application. The mortgage system systematically ignores the very proof that best demonstrates financial dependability, i.e., an unbroken, long-term track record of covering major housing expenses.

In all my years working in mortgage finance, this has proved something of a conundrum. When a tenant proves, month in and month out over many years, that they possess the means to pay for their housing, why do we act as if we cannot judge whether they can afford a home of their own?

The explanation lies in how we determine who is worthy of a mortgage. Underwriting, the process by which a lender judges a borrower’s capacity to repay, is based on a strict set of measures: a credit score, a ratio of debt to income and the sum a borrower is able to provide as a down payment. What it does not weigh, however, is a history of paying rent. A tenant may surrender a third or more of their income to a landlord every month for a decade and remain, in the underwriter’s eyes, an unknown quantity. 

Those who suffer most from this arrangement are first-time buyers, and in particular, younger homehunters. They tend to be the ones renting in our most expensive cities and paying the highest prices on record. They are, that is to say, the very people furnishing the clearest evidence of their capacity to pay, yet they are penalized for it, for no better reason than that the evidence takes the form of rent rather than of a mortgage. 

A record of twelve years of rent paid on the first of each month is, if anything, sounder proof of future payment than some of the measures we rely on today. To admit rent into our underwriting standards would open the door to ownership for a generation that has been all but confined to renting, and it would do so without lowering the standards of prudent lending. It would merely enlarge our definition of what counts as proof.

Why has it not happened? The answer, in part, is capital. To build a system capable of gathering, verifying, and scoring rental payments at scale would require considerable private investment, and the rating agencies behind mortgage-backed securities are not yet equipped to assess this kind of information. Without their involvement, marketing the loans derived from this framework becomes significantly more challenging, keeping capital on the sidelines. But we do have partial answers. The rent-to-own sector, to name one, is expanding by more than 7% a year and is expected to grow from some $12B to $18B by the close of the decade. Nonetheless, these are modest and imperfect bridges across a very broad river.

And here a more searching question arises. When a solution is so evidently effective, what does it reveal about the interests the existing system was designed to protect? As ever, we must guard against setting unrealistic expectations. It is easy to imagine that reforming the underwriting model will solve the broader housing affordability crisis, when in reality, it addresses only one piece of the problem.

When asked why housing seems increasingly unattainable, most point to interest rates. Yet at around 7%, current mortgage rates align closely with historic averages. They only seem extreme when compared to the unique post-financial crisis era of near-zero borrowing costs. Though expectations deviated from historical benchmarks during those years, a return to more ‘normal’ rates should not be viewed as a genuine crisis.

The true obstacle is the distribution of wealth. The challenge for a growing segment of the American population is not an inability to satisfy underwriting criteria under existing or modernized guidelines. Rather, persistent income disparity leaves households unable to accumulate savings after meeting rental obligations, making a down payment impossible. In this case, revising underwriting standards offers little remedy to an individual who lacks the capital to even consider becoming a homeowner.

Faced with the reality, I am brought to two conclusions. While rent-inclusive underwriting remains a worthy endeavor, one that could grant homeownership to many deserving buyers and attract helpful private capital, its reach is still constrained. It only helps those who have already managed to save enough. Such reforms broaden access at the periphery. Until we confront that reality, we merely celebrate opening a door that remains out of reach for the majority.