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New credit scores from FICO, VantageScore gaining traction


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Sometime in the not too distant future, Fannie Mae and Freddie Mac will require lenders to generate two credit scores for borrowers — the FICO Score 10T and VantageScore 4.0 — if they want the mortgage giants to back their loans. Fannie and Freddie’s federal regulator plans to require lenders to start using both scores next year, although the timeline could slip.

In the meantime, some mortgage lenders have already begun using the new scores — which are said to be more accurate and inclusive than versions of the FICO Score required by Fannie and Freddie today — when qualifying borrowers for loans that they don’t intend to sell to the mortgage giants.

FICO (Fair Isaac Corp.) announced Tuesday that Primis Mortgage Company has become the first bank-owned mortgage originator to adopt the FICO Score 10T to qualify borrowers seeking non-conforming mortgages that don’t meet Fannie and Freddie’s underwriting requirements.

In January, FICO announced that CrossCountry Mortgage, the third biggest retail mortgage lender, would be the first company to adopt the FICO Score 10T to originate non-conforming loans (Movement Mortgage started using the FICO Score 10T in October to analyze non-conforming mortgages in conjunction with classic FICO Scores).

FICO claims that lenders using the FICO Score 10T can boost originations by up to 5 percent without taking on additional credit risk, or continue the same volume of lending while reducing default risk and losses by up to 17 percent.

Julie May

Julie May

“By using FICO Score 10T, Primis Mortgage will be able to provide borrowers with access to credit while supporting the bank’s continued growth and financial inclusion initiatives,” said FICO executive Julie May in a statement.

VantageScore, which is a joint venture of the three nationwide credit reporting agencies — Equifax, Experian and TransUnion — had news of its own this week: the Federal Home Loan Bank of San Francisco announced Monday it’s now accepting mortgages originated by lenders using VantageScore 4.0 credit scores as collateral.

Because VantageScore 4.0 considers rental payments and other data points not included in traditional scoring models, the bank says its members will be able to help close the racial homeownership gap by originating more loans to underserved borrowers.

FHLBank San Francisco, which in 2021 launched the Racial Equity Accelerator for Homeownership with the Urban Institute, is the first member of the Federal Home Loan Bank System to accept mortgages originated by lenders using the VantageScore 4.0 predictive scoring model as collateral.

Teresa Bryce Bazemore

Teresa Bryce Bazemore

“Over the last few years, we have dedicated significant resources and commitment to investing in expanding Black homeownership and we are excited to be the first mover among our peers and bring the program to life,” said FHLBank San Francisco President and CEO Teresa Bryce Bazemore in a statement.

Richard Wada, chief lending officer at Dublin, California-based Patelco Credit Union, said the credit union has been using VantageScore 4.0 to qualify borrowers for auto loans and credit cards.

Richard Wada

Richard Wada

VantageScore 4.0 has “provided us with a new pathway to provide fair and accurate credit scores to a broader population, creating opportunities for us to lend credit safely and soundly to consumers historically left behind,” Wada said, in a statement. “We look forward to leveraging VantageScore 4.0 for mortgage lending in the future.”

The shape of things to come

It remains to be seen how long it will before lenders are required to make the switch to FICO Score 10T and VantageScore 4.0 — and also move to a “bi-merge” process allowing lenders to submit two credit reports instead of three (“tri-merge”) when calculating credit scores.

After validating the new credit scores for use by Fannie and Freddie in October 2022, the Federal Housing Finance Agency (FHFA) last March published a phased timetable for implementation.

Under that timetable, lenders would still be allowed to base their underwriting decisions on the Classic FICO credit score until the end of next year. But beginning in the third quarter of this year, lenders would also be expected to generate FICO Score 10T and VantageScore 4.0 credit scores when selling loans to Fannie and Freddie.

Lenders complained that the schedule would be challenging to meet, so last fall the FHFA announced that it was seeking more public input, which left the timeline for implementation in doubt.

A proposed timeline published by Fannie and Freddie in December maintains a Q3 2024 goal for the first phase of the VantageScore 4.0 rollout, and Q4 2025 as the goal for final implementation. But there’s an asterisk at the bottom of the timeline noting that aspects “are subject to potential revisions in the future.”

VantageScore has engaged in a public relations campaign to keep the Q4 2025 timeline for requiring lenders working with Fannie and Freddie to use VantageScore 4.0, saying delays would impact “creditworthy people of color.”

One of VantageScore’s backers, the credit reporting agency TransUnion, has also questioned the plan to let lenders use two instead of three credit reports, claiming some borrowers will end up paying a higher rate or be declined for a mortgage altogether.

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