Home News Mortgages Sold to Fannie, Freddie Should Use More Than FICO Scores, Regulator Says

Mortgages Sold to Fannie, Freddie Should Use More Than FICO Scores, Regulator Says

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The Federal Housing Finance Agency said Monday it will require lenders that use their credit score to underwrite mortgages to use both scores.

Fair Isaac Co., Ltd.,

FICO 1.52%


FICO Credit Score creator and competitor VantageScore Solutions LLC.

Until now, mortgage lenders had to evaluate most borrowers Use only FICO scores if they want to sell loans

fannie mae

FNMA 1.31%


freddie mac.

FMCC 0.99%

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This requirement helped solidify FICO’s dominant position as the go-to credit score for various loan lenders. The lender had to use her FICO score on many mortgages, so he made the FICO score the preferred third party his credit score when underwriting auto loans, credit cards, and other consumer loans. This also helped secure his FICO score as the primary credit score used in the securitization market.

The FHFA, Fannie Mae, and Freddie Mac began considering whether to change credit score requirements in 2014.

Consumer advocacy group VantageScore and some mortgage lenders were pushing for the change, saying more people could get their mortgage approved.

In a statement, the FHFA said it expected the change to be “a multi-year effort.”

FHFA Director Sandra Thompson, who announced the change on Monday, said the old version of the FICO score that was needed was Recent FICO Scoreis called 10 T, and VantageScore’s latest credit score is called VantageScore 4.0.

According to the FHFA, the score includes not only information about bank loans and other financings that have historically been reflected in the score, but also accounts such as rent payments, utility bills, and phone bills on a borrower’s credit report. It is said that the information when it is added is incorporated. The information is likely to increase approval for those with limited borrowing histories, the agency said.

Speaking at the Mortgage Bankers Association conference in Nashville, Tennessee, Thompson said that requiring credit scores for both would give Fanny and Freddie more borrowers to assess and help manage credit risk for the mortgage-finance giant. said to be improved. She also said the two scores would safely expand access to credit for borrowers who “have less robust credit histories.”

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“Our goal is to maximize accuracy and comprehensiveness while ensuring a smooth transition and avoiding unnecessary complexity and implementation burden,” she said.

For years, FICO competed to maintain its position as the dominant credit score for mortgages, and VantageScore tried to break in.

VantageScore owned by credit bureau

Equifax Ltd,


sequencer and

trans union,

Although launched in 2006, its scores were rarely used in consumer loan underwriting decisions until recently. The company attributed this largely to the inability to use it for Fanny or Freddie’s mortgage. Barrett Burns, former CEO of VantageScore, has been seeking FHFA approval for many years.

VantageScore said it could assign credit scores to approximately 37 million more consumers than the FICO scores previously required. According to VantageScore, about 10 million of those consumers could qualify for a Fanny or Freddy mortgage. About 4 million out of 10 million people are minorities, according to the company.

Silvio Tavares, the company’s current CEO, said, “Today’s action will help millions of Americans gain access to mortgages with VantageScore’s more predictive credit scores. It will correct the imbalance that has been seen in mortgage suitability until now.”Fanny and Freddy’s Mortgage Share dominated by black consumers.

Rather than taking out loans, Fanny and Freddie buy them from lenders and package them into securities that are sold to other investors. Their promise to make investors complete in case of default underpins the popular 30-year fixed-rate mortgage.

Fanny and Freddy’s policy change is significant. Because their role in supporting about half of the $13 trillion mortgage market helps determine who has access to mortgage credit and on what terms. FHFA oversees Fanny and Freddie.

Even if borrowers don’t have a score of two when the change takes effect, Fanny and Freddie can still underwrite loans manually rather than through an automated system, FHFA staff told reporters. . The manual process of reviewing loan applications by humans rather than computers is how businesses assess the risk of loans for people without traditional credit scores.

FICO said in a statement that it is pleased that scores will continue to be required on Fanny and Freddy’s mortgages.The FICO 10 T “provides continuity and stability to lenders, investors and consumers ‘ said the company.

Fannie Mae and Freddie Mac notified VantageScore last year that their latest credit scores passed the credit score evaluation.

The FHFA on Monday changed its requirement that mortgage lenders use credit reports from all three major credit bureaus, Equifax, Experian and TransUnion, for Fannie and Freddy’s mortgages, instead requiring three I said I would only ask for two of them. The agency expects the change to “reduce costs and further encourage innovation.”

The move could intensify competition between the three credit bureaus that previously anchored this large segment of the mortgage market.

write destination Annamaria Andriotis [email protected] Andrew Ackerman [email protected]

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