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13h ago

FHFA Allows VantageScore 4.0 for Fannie Mae and Freddie Mac Mortgages

The policy aims to break FICO’s near-monopoly on mortgage scoring to lower closing costs.

A row of houses are seen in Charlotte, North Carolina on June 14, 2014.
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.
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Overview

  • FHFA Director William Pulte announced that Fannie Mae and Freddie Mac will immediately allow lenders to use VantageScore 4.0 alongside FICO for government-backed mortgage underwriting.
  • Shares of Fair Isaac Corporation tumbled more than 17% following the announcement, reflecting investor concern over FICO’s long-standing market dominance.
  • VantageScore 4.0 incorporates alternative data such as rent and utility payments to better evaluate borrowers with limited credit histories.
  • Analyst Jaret Seiberg cautioned that banks’ limited experience with VantageScore and strict underwriting standards may slow lenders’ uptake of the new model.
  • The change aligns with federal efforts by the FHFA and CFPB to curb mortgage junk fees and expand credit access for underbanked borrowers.