Real Estate

New Rules For Scoring Mortgage Borrowers Coming In Q4 2025

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Lenders who want to sell mortgages to Fannie Mae and Freddie Mac next year will have to begin using the new FICO Score 10T and VantageScore 4.0 scoring models by the fourth quarter, but they’ll also be allowed to submit two credit reports instead of three when calculating credit scores.

That’s the new timetable laid out Thursday by Fannie and Freddie’s federal regulator, which sees retiring the Classic FICO credit score model and implementing “bi-merge” credit reporting at the same time as a way to simplify the process.

To accommodate an “aligned transition,” the Federal Housing Finance Agency (FHFA) is instructing Fannie and Freddie to publish VantageScore 4.0 historical data early in Q3 2024, instead of Q1 2025 as originally proposed.

Sandra Thompson

“Synchronizing bi-merge credit reporting with the implementation of the new credit score model requirements will reduce complexity for market participants, which is a key objective of our transition efforts,” FHFA Director Sandra L. Thompson said, in a statement. “The release of historical data on tens of millions of Enterprise loan acquisitions affirms the commitment of FHFA and the Enterprises to a robust, transparent implementation process.”

“The Enterprises” are Fannie Mae, Freddie Mac and the 11 Federal Home Loan Banks, which supply funds to community banks and other financial institutions.

The Federal Home Loan Bank of San Francisco announced on Feb. 12 that it had begun accepting mortgages originated by lenders using VantageScore 4.0 credit scores as collateral.

CrossCountry Mortgage, Movement Mortgage and Primis Mortgage Company have adopted the FICO Score 10T to qualify borrowers seeking non-conforming mortgages that don’t meet Fannie and Freddie’s underwriting requirements.

Both the FICO Score 10T and VantageScore 4.0 are touted by their backers as more accurate and inclusive than versions of the FICO Score required by Fannie and Freddie today, but some lenders had pushed back against FHFA’s timetable for moving to the new scoring models.

VantageScore, a joint venture of the three nationwide credit reporting agencies — Equifax, Experian and TransUnion — had engaged in a public relations campaign aimed at convincing regulators to stick to the Q4 2025 implementation timeline.

In a study released in October, VantageScore claimed its new scoring model could help 4.9 million additional borrowers qualify for a mortgage, and that delays to implementation would impact “creditworthy people of color.”

Adoption of VantageScore 4.0 “is making a significant positive impact in addressing the racial homeownership gap, as well as improving the safety and soundness of the mortgage finance system,” VantageScore’s Senior Vice President of Industry and Government Relations Tony Hutchinson said in a statement Thursday.

“We are pleased that the FHFA has accelerated the release of VantageScore 4.0 historical data so that the industry can continue to speed up its implementation of VantageScore 4.0 scores,” Hutchinson said. “We remain committed to working proactively and transparently with all stakeholders towards a smooth transition to more inclusive and predictive scores.”

One of VantageScore’s backers, 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.

“Using only two credit scores will often result in an incomplete and inaccurate picture being painted of a potential borrower — particularly if a consumer’s most favorable set of credit data is the one that gets excluded,” TransUnion said in an analysis last fall.

“The more we examine the proposition of a ‘bi-merge,’ the more it becomes clear that homebuyers would take a hit, particularly those from disadvantaged communities,” TransUnion’s Head of U.S. Government Relations Allison Shuster told Inman in a statement. “Our own research found that half a million new mortgages would experience higher interest rates under a bi-merge, while 2 million consumers who would qualify today would lose the opportunity under a bi-merge. That’s too steep a price for the meager savings of a single credit report.”

The FHFA said Thursday that allowing lenders to obtain credit reports from just two of the three nationwide consumer reporting agencies will “promote more robust market competition.”

Requiring the Enterprises to publish VantageScore 4.0 historical data this year instead of next will help lenders make the switch to the new credit scoring models using bi-merge reporting, the agency said.

“In recent public forums hosted by FHFA, stakeholders have emphasized the importance of this historical data to allow them to analyze the new models, as well as bi-merge credit reporting, and assess any changes they must make to their systems and models,” FHFA said.

“Stakeholders have also shared perspectives on the efficiencies associated with aligning the option for bi-merge credit reporting with the transition from Classic FICO.”

A spokesperson for the Mortgage Bankers Association said the group “appreciates FHFA’s continued partnership with industry stakeholders and its willingness to make adjustments throughout this process.”

Inman has requested comments from Equifax and Experian.

Editor’s note: This story has been updated to include comments from VantageScore and TransUnion.

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