BNPL providers like Affirm, Klarna and AfterPay offer short-term installment financing that lets consumers pay for purchases over time. BNPL usage is projected to grow from 82.1 million users in 2023 to 112.7 million by 2027. Short-term BNPL financing presents risks including repayment challenges, late payments that accrue interest, and unreported obligations that raise debt-to-income ratios (DTI). BNPL debt often does not appear on credit reports, complicating underwriting and obscuring borrowers' true financial status. Recommended actions include establishing a standardized BNPL definition, developing and testing reporting guidelines, streamlining data reporting for automated underwriting, and issuing interim underwriting guidance and a provider list.
The MBA wrote that while it appreciates that FHA is looking into BNPL debt and its rapid growth, it has several recommendations based on concerns that BNPL debt could impact homebuyers' ability to qualify for FHA loans and FHA's ability to manage financial risk. BNPL providers, such as Affirm, Klarna and AfterPay, offer short-term financing options that allow consumers to make payments on purchases over time in installments.
But the short-term financing options come with risk. Many users face repayment challenges or make late payments that accrue interest. BNPL use can increase debt-to-income ratios (DTI) and, since BNPL debt doesn't show up on credit reports, presents itself as an underwriting fiasco, making it harder to understand a borrower's true financial status. The recommendations include the FHA establishing a clear, standardized definition of BNPL debt to help lenders determine which obligations should be evaluated under BNPL guidance.
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