CFA responded to HUD’s opportunity to offer public comment on the question of how the emergence of Buy Now Pay Later (BNPL) installment loans impacts housing affordability and stability for mortgage borrowers of Federal Housing Administration (FHA) loans.

FHA is a mortgage program directly backed by the federal government, which has sought to bring homeownership within reach of American families since 1934. One of the core missions of FHA is to help underserved borrowers access affordable and sustainable homeownership. Over 80 percent of FHA borrowers are first-time homebuyers. FHA has developed robust underwriting standards, which seek to fairly evaluate borrowers’ credit risk and ability-to-pay a mortgage, while protecting the safety and soundness of the Mutual Mortgage Insurance Fund.

New financial products raise additional questions about what fair and adequate underwriting standards look like. In this comment letter, we address the suitability and potential predictive power of Buy Now, Pay Later lending for evaluating FHA borrowers’ creditworthiness. While we encourage FHA to identify opportunities to expand access to homeownership, we have concerns that the use of BNPL loans may not serve this worthwhile goal. We urge the FHA to take a cautious approach. Recent news that one BNPL lender will partner with a credit scoring agency presents opportunities to expand access to credit, but their work will still be the exception to industry norms. It remains unclear whether BNPL lending will have a meaningful impact on borrower creditworthiness, as loan amounts are often very small and usage is often sporadic. It is certain that these changes create an imperative to educate consumers on when and how BNPL can affect their credit and ability to quality for a mortgage.