WASHINGTON—The Department of Housing and Development is looking for input on how buy now, pay later (BNPL) financing may be affecting borrowers’ ability to meet housing-related expenses, including rent or mortgage payments. Comments are due to HUD on or before August 25.
“The rise of BNPL lending raises important questions about how it may impact housing affordability and stability,” the department said in issuing a Request for Information. “As consumers take on additional short-term debt obligations through BNPL services, their capacity to manage housing-related expenses, such as rent or mortgage payments, may be affected.”
HUD pointed out that use of BNPL services is growing rapidly and is changing how individuals manage short-term expenses.
‘Phantom Debt’
“BNPL loans essentially create ‘phantom debt’ that mortgage lenders may not be readily able to detect as needed to fully assess a borrower’s outstanding obligations or debt management behavior,” HUD said in a statement.
HUD said that FHA’s policies would largely exclude BNPL loans from consideration in underwriting because closed-end debts are not required to be included if they will be paid off within 10 months from the date of closing and the cumulative payments of all such debts are less than or equal to 5% of the borrower’s gross monthly income.
“Understanding the intersection between BNPL lending and housing-related expenses is crucial for determining whether FHA’s current policies are adequate or if development of BNPL-specific policies are warranted for FHA to continue to support financial self-sufficiency and housing stability,” HUD stated.
Series of Questions
Among the questions on which HUD is seeking comment:
- How does frequent BNPL usage affect borrowers’ ability to meet housing-related expenses, including rent or mortgage payments?
- What are the credit and spending profiles of people who frequently rely on BNPL services?
- Why do borrowers choose BNPL services over other payment methods?
- Are borrowers taking out multiple concurrent BNPL loans—known as loan stacking—and what are the implications for overall debt burden?
- What is the relationship between BNPL use and indicators of financial vulnerability?
- What housing-related expenses are sacrificed to repay BNPL loans?
- How might BNPL usage affect a household’s risk profile or eligibility for FHA-insured mortgage programs?
As the CU Daily recently reported, FICO has announced new credit scores that will factor in BNPL borrowings.
