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13h ago

FHFA Lets Lenders Use VantageScore 4.0 for Fannie Mae and Freddie Mac Mortgages as FICO Shares Tumble

Intended to lower closing costs for borrowers, the directive challenges FICO’s decades-long dominance by introducing an alternative scoring model

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

  • On July 8, FHFA director Bill Pulte authorized lenders to use VantageScore 4.0 alongside FICO for government-backed mortgages effective immediately
  • Shares of Fair Isaac Corporation fell more than 17% following the announcement as markets reacted to increased competition
  • FHFA said the change aims to boost competition in mortgage underwriting and reduce borrower closing costs
  • Analysts warn that lenders’ limited experience with VantageScore could slow widespread adoption of the new scoring option
  • The decision follows a CFPB inquiry into rising credit report fees after costs surged by up to 400% since 2022