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VantageScore is putting heat on regulators to stick to a timetable that would require mortgage lenders working with Fannie Mae and Freddie Mac to use its latest credit scoring model by no later than 2025, saying such a move could open up access to mortgage credit to 4.9 million new borrowers.
In a study released Thursday, VantageScore claimed the expanded pool of mortgage borrowers could boost annual mortgage originations by as much as $1 trillion, and that the default rates on as many as 2.7 million additional mortgages would be similar or better than for “conventionally scorable” borrowers.
Anthony Hutchinson
“Our research found that areas with fewer conventionally scorable consumers reported lower incomes, higher rental rates, limited access to brick-and-mortar banks and larger minority populations,” VantageScore executive Anthony Hutchinson said in a statement.
Requiring lenders that sell mortgages to Fannie and Freddie to start using VantageScore 4.0 will “yield immediate and significant benefits in expanding access to the mortgage market and narrowing the homeownership gap for creditworthy people of color,” Hutchinson said. “We must not accept further delay.”
It’s a given that lenders doing business with Fannie and Freddie will eventually be required to provide two credit scores — the FICO 10T and VantageScore 4.0 — which are seen as more inclusive than the Classic FICO score that’s been in use for nearly two decades.
At issue is how soon lenders will have to make that change — and also move to a “bi-merge” process that would allow lenders to use two, instead of three credit reports 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) in March laid out a phased timetable for implementation.
In a first phase beginning in the third quarter of 2024, lenders were to deliver FICO Score 10 T and VantageScore 4.0 credit scores when selling loans to the mortgage giants, but could still base decisions on the Classic FICO credit score.
Final implementation of the updated credit score requirements was slated for Q4 2025, when it was expected lenders would retire the Classic FICO credit score altogether and incorporate the FICO Score 10T and VantageScore 4.0 scores into their pricing, capital, and other processes.
But after lenders said the schedule would be challenging to meet, the FHFA announced on Sept. 11 that it would seek more public input — throwing the timeline for implementation into doubt.
“This engagement, which will include stakeholder forums and listening sessions, will allow for identification of a wide variety of issues, opportunities, and challenges related to successful implementation of the new requirements, including potential refinements to the timeline for adoption,” the agency said.
The FHFA declined to comment on VantageScore’s claim that delays in implementation will impact “creditworthy people of color.”
Asked whether lenders will still be required to meet the schedule laid out in March, an agency spokesperson pointed Inman to a proposed timeline in the “Partner Playbook” published by Fannie Mae and Freddie Mac.
That timeline maintains the Q3 2024 goal for the first phase of the VantageScore 4.0 rollout, and the Q4 2025 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.”
In July, four members of Congress — two Republicans and two Democrats — wrote FHFA Director Sandra Thompson to “strongly urge” the agency to stick to the 2025 timeline for requiring lenders to use both VantageScore 4.0 and FICO 10T scoring models.
“Homeownership is a foundational pillar of the American Dream and Congress expects the Agency, the Enterprises [Fannie Mae and Freddie Mac], and all mortgage market stakeholders to move with urgency to comply with the Credit Scoring Competition Act of 2018,” U.S. Reps. Brittany Pettersen (D-Colorado), Vicente Gonzalez (D-Texas), Zach Nunn (R-Iowa) and Young Kim (R-California) wrote Thompson.
VantageScore is a joint venture of the big three credit reporting agencies — Equifax, Experian, and TransUnion.
On Oct. 16, TransUnion released a report claiming that as many as two million consumers could end up being reclassified as ineligible to take out a mortgage if lenders working with Fannie and Freddie are allowed to provide credit reports from just two of the three nationwide consumer reporting agencies.
FHFA announced in September that the transition from tri-merge to bi-merge credit reporting is no longer expected to begin in Q1 2024, as originally proposed.
The Mortgage Bankers Association welcomed the additional time, calling it “an acknowledgment of the significant operational complexities and the magnitude of this effort on the housing finance system, consumers and investors of mortgage assets. MBA has advocated for a longer implementation timeline, and we appreciate FHFA taking our recommendations to heart.”
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