Written by: Internal Analysis & Opinion Writers
The Mortgage Bankers Association (MBA) has formally raised concerns to the Federal Housing Administration (FHA) about how Buy Now, Pay Later (BNPL) debt should be treated in mortgage underwriting. In a letter submitted on August 25, the MBA highlighted risks that could undermine borrower affordability assessments and FHA’s financial safeguards.
In the letter, the MBA expressed appreciation that FHA is studying the implications of BNPL usage, particularly as it rapidly gains adoption through platforms like Affirm, Klarna, and AfterPay. Yet the MBA stressed that without a consistent definition and reporting mechanism for BNPL debt, lenders may end up underestimating a borrower’s debt-to-income ratio—potentially approving loans for individuals bearing hidden obligations.
The MBA pointed out that BNPL repayments, often short-term and fragmented, frequently go unreported on credit files, making them invisible during standard underwriting reviews. This lack of visibility not only hampers risk assessment but also impairs FHA’s ability to evaluate and manage financial exposure.
To address these challenges, the MBA proposed that FHA define a uniform standard for what constitutes BNPL debt. It urged implementation of clear reporting guidelines and recommended conducting controlled testing to confirm that lenders can manage DTI calculations accurately using the new definitions.
Additional suggestions included publishing a non-exhaustive list of common BNPL providers that might appear in borrowers’ statements—thereby improving transparency. The MBA also encouraged FHA to issue interim underwriting instructions in advance of final policy, giving lenders time to adapt systems and compliance processes.
The letter comes as FICO prepares to incorporate BNPL data into its credit scoring models—introducing versions like FICO Score 10 BNPL—underscoring the growing relevance of this debt type to broader credit assessments.
