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57 August 2025 J O U R N A L themortgagepoint.com August 2025 » HUD: COULD 'BUY NOW, PAY LATER' UNDERMINE HOME AFFORDABILITY? T he U.S. Department of Housing & Development (HUD) is inves- tigating how Buy Now, Pay Later (BNPL) products impact a borrower's ability to meet housing-related expenses, including rent or mortgage payments. BNPL loans allow shoppers to divide a purchase into payment installments. Data gathered in response to HUD's Request for Information (RFI) will inform HUD's efforts to ensure that FHA single-family mortgage insurance (MI) policies effectively address the evolving fi- nancial landscape and support the needs of American households. Through the RFI, HUD wants to understand how BNPL obligations may affect the ability of FHA lenders to accurately assess risk, the impact of BNPL lending on housing affordability and stability, and whether policy changes are needed to preserve sound mortgage underwriting standards. Consumer adoption of BNPL financ- ing is rapidly growing and changing how individuals manage short-term expenses. According to a January 2025 report from the Consumer Financial Protection Bureau (CFPB), 21% of consumers with a credit record financed at least one purchase using a BNPL product from a major provider in 2022. Many of these consumers are "heavy users" of BNPL products, with more than 60% of them having multiple simultaneous BNPL loans in 2022. This elevated credit utilization may reflect constrained liquidity that could impact qualifying ratios and risk layering in mortgage underwriting, which is of particular concern because most BNPL obligations are not reported to credit bureaus. BNPL loans essentially create "phantom debt" that mortgage lenders may not be readily able to detect as needed to fully assess a borrower's out- standing obligations or debt management behavior. HUD is welcoming all comments relevant to BNPL loans and their impact on housing affordability and stability, including but not limited to: • Evaluation methods used by mort- gage lenders and underwriters to identify BNPL obligations. • Risk assessment and loan approval challenges faced by underwriters when considering borrowers with BNPL debt. • Debt-to-income (DTI) calculations are used in mortgage eligibility, especially when obligations are not visible in credit reports. • Recommended policy measures to ensure that BNPL obligations are appropriately considered in DTI cal- culations without imposing undue burdens on borrowers or lenders. According to HUD, "BNPL loans essentially create 'phantom debt' that mortgage lenders may not be readily able to detect when needed to fully assess a borrower's outstanding obligations or debt management behavior." According to law firm Ballard Spahr, 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. In measuring the impact of BNPL products on credit, global analytics soft- ware provider FICO recently announced the launch of FICO Score 10 BNPL and FICO Score 10 T BNPL, the first credit scores to incorporate BNPL data. These innovative scores, developed by FICO from data-driven research, represent a significant advancement in credit scoring, accounting for the growing importance of BNPL loans in the U.S. credit ecosystem. "Buy Now, Pay Later loans are playing an increasingly important role in consumers' financial lives." —Julie May, VP and General Manager of B2B Scores, FICO