WASHNGTON–Americas Credit Unions is calling on the Department of Housing and Urban Development (HUD) to factor “Phantom debt” related to buy now, pay later (BNPL) financing into FHA underwriting standards, arguing it poses risks to both borrowers and housing market stability.
In a letter responding to HUD’s request for information, America’s Credit Unions Regulatory Affairs Counsel Tyler Maron wrote that while BNPL use has surged, most of these loans are not reported to credit bureaus.
As a result, these debts often go undetected in mortgage applications, leading to inaccurate debt-to-income calculations and higher default risks, according to America’s Credit Unions.
‘Especially Harmful’
The letter further warns that unreported BNPL obligations “could be especially harmful in FHA lending, which serves borrowers with smaller down payments and lower credit scores. Defaults in this segment could increase claims against FHA’s Mutual Mortgage Insurance Fund and undermine the program’s stability.”
To improve transparency, the trade group is urging HUD to require that BNPL debts are incorporated into underwriting — either through standardized reporting by BNPL providers or borrower disclosure of BNPL usage on loan applications.
‘Transparency & Safeguards’“Although America’s Credit Unions maintains concerns that BNPL may harm younger and lower income Americans, its growing usage requires implementation into FHA’s underwriting policies to ensure transparency and safeguards for credit unions,” Maron in the letter. “America’s Credit Unions, while supporting broader access to credit, stresses the need for responsible lending practices that consider borrowers’ financial health
