The mortgage credit-score market is changing again, and this time the expansion reaches every approved lender that sells eligible loans to Fannie Mae and Freddie Mac.

Federal Housing Finance Agency Director Bill Pulte directed the two government-sponsored enterprises to approve all lenders to use VantageScore 4.0.

Fannie Mae has now issued implementation guidance making that expanded access effective immediately.

The key word is choice.

This does not eliminate credit scores, and it does not remove Classic FICO from the mortgage process.

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It gives approved lenders another accepted scoring model when they deliver qualifying mortgages to Fannie Mae and Freddie Mac.

The Federal Housing Finance Agency explains that lenders may use either Classic FICO or VantageScore 4.0 during the interim phase of the transition.

Classic FICO remains an approved model. The agency says the immediate addition of VantageScore does not initially change existing credit-reporting requirements, including the reports gathered from the nationwide credit bureaus.

FHFA approved both VantageScore 4.0 and FICO 10T in 2022 after testing by Fannie Mae and Freddie Mac. The enterprises later published historical VantageScore data covering tens of millions of loans so lenders and investors could compare how the model performed.

The agency says FICO 10T remains on a separate implementation track. That means the September directive expands the lender network for one approved alternative without removing Classic FICO or forcing every lender to use the same replacement model.

The September expansion follows a limited rollout involving 50 lenders.

Pulte framed the directive as a competition and cost issue.

In announcing the move, he said FICO had increased the price of a credit score by 1,800 percent since 2020 and described the company’s position in mortgage scoring as a monopoly.

That 1,800 percent figure is Pulte’s claim. FHFA’s public credit-score page does not provide a price table substantiating the calculation.

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HousingWire reported that Pulte is also considering whether the current three-bureau credit-report structure should be reduced to two reports, known as a bi-merge, or in some cases a single report.

Pulte separately accused Equifax, Experian, and TransUnion of overcharging consumers and described their conduct as cartel-like. The three bureaus jointly own VantageScore, so the new model introduces competition with FICO without creating a new competitor to the bureaus themselves.

FICO told the publication that it supports competition based on performance, trusted analytics, and outcomes for borrowers, lenders, and investors. The company also promoted FICO Score 10T, which uses trended and rental data.

The Mortgage Bankers Association supported moving away from a mandatory three-report structure for borrowers with strong credit profiles. The possible reporting changes remain under review and are separate from the immediate expansion of VantageScore across the approved Fannie and Freddie lender network.

VantageScore 4.0 considers trended credit information and can include rental-payment history when that data is present in a consumer’s credit file.

FHFA says modernized models can help identify creditworthy borrowers who may be overlooked by older systems while improving the prediction of default risk.

The Department of Housing and Urban Development announced in April that the Federal Housing Administration would also permit VantageScore 4.0 and FICO 10T for FHA-insured mortgage underwriting.

HUD described that change, along with Fannie and Freddie’s adoption work, as the first implementation of new mortgage credit-score models in decades. The department said the newer models can consider rent-payment information and may identify creditworthy applicants who were harder to score under older systems.

The announcement built on the Credit Score Competition Act, signed into law by President Trump in 2018. The law required FHFA to establish a process for validating alternative models used by Fannie Mae and Freddie Mac.

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HUD’s action covers FHA-insured loans, while the latest Fannie and Freddie guidance applies to eligible loans delivered to those enterprises. The programs overlap in the housing market, but they operate under different underwriting and insurance structures.

VantageScore said that, as of August 31, its 4.0 model had been used as the sole score for more than 9 percent of mortgages securitized by Fannie Mae and Freddie Mac since May 1.

The company says its model uses trended account information, rent data when available, and a broader set of credit-file inputs than older scoring systems. It also estimates that wider competition could save the mortgage market nearly $1 billion annually.

Those performance and savings figures are claims from VantageScore, which benefits commercially from broader adoption of its model. FHFA’s public guidance focuses more narrowly on lender choice, model validation, risk management, and the continuing safety-and-soundness obligations of Fannie Mae and Freddie Mac.

The initial 50-lender rollout supplied operating experience before the network-wide expansion. The next measurable question is how many additional lenders adopt the model and whether increased model competition changes the fees ultimately paid during mortgage origination.

For borrowers, the practical effect will depend on whether a lender adopts VantageScore, how that lender’s underwriting system uses it, and how the borrower’s credit history appears under the different models.

A borrower should not assume that a VantageScore will automatically be higher, lower, or more favorable than a Classic FICO score. The models weigh information differently, and a lender’s full underwriting standards still matter.

What changed immediately is the size of the doorway.

Fannie Mae and Freddie Mac are no longer limiting VantageScore deliveries to the initial lender group. Every approved lender can now seek to use the alternative model for eligible loans, while Classic FICO remains available.

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That is a significant competitive shift in a mortgage market that relied on one scoring model for decades. Credit scores remain part of underwriting, while the initial limited rollout has ended.

This is a Guest Post from our friends over at WLTReport. View the original article here.

 

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