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yesterday

FHFA Allows Use of VantageScore 4.0 for Government-Backed Mortgages

The FHFA’s change seeks to expand credit access through a rival score that factors rent payments as well as utility data into mortgage decisions

A row of houses are seen in Charlotte, North Carolina on June 14, 2014.
A house's real estate for sale sign is seen in front of a home in Arlington, Virginia, November 19, 2020.
Mortgage borrowers are in for a big change.
Both FICO and VantageScore issue credit scores with the goal of predicting the likelihood that a person will fall behind on debt repayments, but the two companies have differing methodologies to arrive at that score.

Overview

  • FHFA Director William Pulte announced on July 8 that lenders may immediately use VantageScore 4.0 in place of FICO for loans sold to Fannie Mae and Freddie Mac.
  • Shares of Fair Isaac Corp plunged more than 17 percent after the announcement, while stock prices for Equifax, Experian and TransUnion rose modestly.
  • VantageScore 4.0, developed by the three major credit bureaus, uses the 300–850 scale and incorporates nontraditional payment data to assess consumers with thin credit files.
  • Housing analysts warn that lenders’ limited experience with VantageScore and unresolved protocols for reporting and verifying rent and utility information could slow adoption.
  • The move follows a CFPB inquiry into rising credit-report fees and supports broader efforts to boost competition, lower closing costs and broaden homeownership opportunities.