What does the future of rent reporting look like?
To project the future, it’s helpful to look to the past and where we are today.
When my co-founder and I started Boom in late 2020, reporting rental payments to the credit bureaus wasn’t a new idea. Several companies existed at the time to do this.
Yet, talk to anyone at the major CRAs at the time (and even today), and they would tell you about low (but rising) penetration of rent reporting, which still largely persists today. There are approximately 120 million renters in the U.S., and from what we’ve heard, only about 1-10 million active rental tradelines, depending on the bureau.
The low penetration is due to a number of factors. For the sake of this article, we’ll stick to the biggest one we hear about: cost. Historically, rent reporting providers have charged anywhere from $2-5 per renter or unit per month to the property manager.
This high cost is driven by 3 challenges holding back the industry: 1) lack of technical infrastructure, 2) industry fragmentation (i.e. # of landlords), and 3) messy data.
Boom observed, confronted (and addressed) each of these shortcomings over the past 3+ years. Let’s dig into each of these challenges:
1) Lack of technical infrastructure: A hindrance to accurate rental data furnishment
Furnishing rent payment data is a tedious, error-prone process. Most rent reporting solutions to date have lacked the technical infrastructure required to provide a truly scalable software-driven rent reporting solution, including features such as bi-directional PMS integrations, data deduplication, automation tradeline verification, partial payment matching, etc.
Instead, these solutions rely on manual or crude processes that often require landlords go through the grueling process of inputting rental data into spreadsheets month after month. Not only does this waste the landlords’ time, but results in inevitable data errors.
One example of the crude credit reporting processes we’ve observed is the practice of reporting renters as ‘on time’ simply because they were still present on the rent roll. The assumption is made that if a renter was 30 days late on rent, the renter would have been evicted and not on the rent roll. However, there are a number of reasons why this might not be the case, and proper rent reporting requires cross-analysis of the outstanding balance along with the ledger, which requires a bit more sophistication.
2) Industry fragmentation: Millions of landlords instead of ~15,000 banks with unified payment portals
Comparing credit reporting of rental data to reporting other types of data, it’s easy to see the unique challenges of reporting rental data. One big one stands out: data source fragmentation.
Take credit cards - i.e. revolving loan tradelines - as an example. There are ~15,000 U.S. financial institutions. Chase is an example. Most consumers pay through the same single Chase portal every month. The data is fairly standard and fits squarely into the Metro 2 furnishment file format which was designed specifically for lending repayment data.
With rentals, you have 10+ million landlords in the US. Each landlord may have their own set of preferred payment methods or portals—through their PMS, mail-in checks, Venmo, etc. Therefore, tracking and reporting payments gets tricky. Additionally, ~50% of these landlords are mom and pops that don’t have the extensive resources that a bank has to execute accurate credit reporting, especially given the previously mentioned lack of software in the space.
Compounding this, rental data is much messier than bank data.
3) Messy data: Rental data is not straightforward (PMS data or not), and each landlord makes their own rules
For example, in rentals, even in the same single system of record (e.g. Yardi), different landlords will use different fields in different ways (e.g. move-in date vs. lease start date).
The maneuvers are also highly diverse: landlords might have a payment plan on the side with a renter that isn’t fully captured in the PMS; leases might renew but the renter might shift to a different unit in the same building. These generate fairly complex credit reporting situations.
Compounding this even further, all this data goes into a Metro 2 file format that wasn’t originally designed for rental data. Even then, each bureau has slightly different approaches to treatment of this data (e.g. when a tradeline will be closed or deleted, min/max of rent amounts allowed, verification processes, etc.). Only in the last year or so have we started to see some convergence on standards.
Regulatory initiatives are growing, but effects are to be determined
As of today, rent reporting is not federally mandated. However, there are a number of recent state bills that seek to require landlords to offer rent reporting, including California’s SB1157. Not enough of these have passed for us to determine how effective they will be in driving up the penetration rate. Additionally, in late 2022, Fannie Mae and Freddie Mac came out with 2 big notices to mortgage originators:
- Move to a bi-merge model: GSEs would only require 2 credit reports instead of 3 credit reports from mortgage originators when they buy the home loans
- Move to new scoring models: GSEs would require mortgages be underwritten with new credit score models (FICO 10, Vantage 4) which incorporated new data sources, including rental data
The result has been that there is now even more incentive for the credit bureaus to acquire rental data, in order to position themselves as one of the top two bureaus with the most scored consumers with the most data on them. The more successful one CRA is at collecting rental data, the more pressure other CRAs will feel to find a sustainable solution for the overall industry.
For example, one of our credit bureau contacts suggested the following solution: if an entity wants to use the credit system to report derogatory information or sell that debt to someone who will report collections, the positive activity must also be/have been reported.
Our perspective: the future of rent reporting is infrastructure
At Boom, we believe that the end game for rent reporting is embedded, and closer to the system of record and/or points of consumer engagement.
Meaning, rent reporting will be embedded in your property management software, embedded in your favorite banking app. Consumer-permissioned rental data will remain important, especially for renters renting from the long tail of mom and pop landlords. And, the cost of rent reporting will be closer to API-level pricing: cents, not dollars.
Historically, there hasn’t been the infrastructure available to enable this future.
But this is changing.
Boom is starting to deliver on this infrastructure-level future. Our embedded rent reporting (Rent Reporting-as-a-Service) is the industry’s first suite of APIs and SDK tools for rent reporting built specifically for PMSs and fintech companies.
For these two customer segments, we project that fintech companies will most often look to implement an opt-in rent reporting model (e.g. pay rent with your fintech app, get free rent reporting), while PMSs should consider vendors that can provide both consumer opt-in and landlord-driven rent reporting, especially as industry trends evolve.
If you’re thinking about implementing rent reporting infrastructure, I’d love to chat with you: rob@boompay.app.
