After Federal Housing Finance Agency (FHFA) Director William J. Pulte’s announcement yesterday that mortgage lenders who sell loans to Fannie Mae and Freddie Mac can, “effective immediately,” use VantageScore 4.0 credit scoring along with or in place of FICO scores in existing tri-merge systems, some are questioning readiness to use VantageScore.
Both Pulte and VantageScore itself noted how the move to allow VantageScore 4.0 would potentially lower costs of loan origination by increasing market competition and open up loan eligibility for perhaps millions of renters, since that credit-scoring model takes rent history into account.
Pulte made a number of posts on X following his initial announcement to this effect of rent payment inclusion in determining creditworthiness. However, others said the move to allow VantageScore won’t necessarily happen instantaneously and requires some guidance from FHFA and the GSEs.
“The FHFA’s announcement allowing lenders to use VantageScore 4.0 for GSE loan deliveries may sound like instant progress, but implementation needs thought,” Eric Lapin, an advisor with the South Carolina Blockchain Emerging Technology Association, posted on LinkedIn.
“Roughly 70% of mortgages are sold to Fannie and Freddie. Over 30% require mortgage insurance, yet MI companies haven’t confirmed Vantage acceptance,” Lapin wrote. “Warehouse lenders and capital markets still price based on FICO models, and loan delivery platforms aren’t set up to support a switch today.”
Further, Lapin noted, many landlords don’t report rent data.
Concerns among mortgage lenders and other industry participants include:
- Those who have historically relied on other credit scoring models, particularly FICO, for mortgage underwriting may need to adjust their internal processes and systems to accommodate VantageScore 4.0;
- While VantageScore 4.0 can operate within existing tri-merge infrastructure, lenders may need to understand and manage the nuances of the model's data requirements, which incorporate trended credit data and potentially alternative data sources;
- Staff involved in credit assessment, underwriting, and risk management will likely require training to understand VantageScore 4.0, including its methodology, score ranges, and how it differs from previously used models;
- Lenders may need to assess how VantageScore 4.0 affects their existing loan portfolios and internal credit models.
Back in March, the American Bankers Association, Housing Policy Council, Independent Community Bankers of America, Mortgage Bankers Association, Structured Finance Association, and U.S. Mortgage Insurers sent a joint letter to Pulte to express concerns about moving to new credit-scoring models, including FICO 10T and VantageScore 4.0, as well as a potential move to a bi-merge credit-scoring system vs. the current tri-merge system in place.
Applauding The Change
Meanwhile, others cheered Pulte’s announcement concerning the allowance of VantageScore 4.0, including the National Association of Realtors (NAR).
“We applaud the announcement from FHFA Director Bill Pulte that the GSEs will soon begin accepting VantageScore in addition to other credit scoring models,” NAR Executive Vice President and Chief Advocacy Officer Shannon McGahn said in a statement.
“This is a major step toward a more accurate and equitable mortgage underwriting process, one that considers timely rent, utility, and telecom payments as indicators of creditworthiness,” McGahn continued. “Expanding the number of acceptable credit scoring models also fosters competition in credit reporting, which will lower costs, increase accuracy, and ultimately help more qualified Americans achieve homeownership.”
In addition, members of Congress added their praise for the move, including Sen. Tim Scott (R-S.C.), chairman of the Senate Committee on Banking, Housing, and Urban Affairs, and Sen. Jim Banks (R-IN), a member of that same committee.
Rep. Anna Paulina Luna (R-FL), a member of the House Committee on Oversight and Accountability, joined them, calling Pulte's VantageScore announcement "incredible news" for potential homebuyers across the country. And Rep. Mike Flood (R-NE), chairman of the House Financial Services Committee's Housing and Insurance Subcommittee, called the move a "commonsense, pro-market step to expand credit options for hardworking families pursuing homeownership."
