topic Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac in Credit in the News

New Mortgage score models accepted by Fannie Mae and Freddie Mac

Hex — Tue, 25 Oct 2022 15:37:29 GMT

Fico 10 T and Vantage 4.

https://www.marketwatch.com/amp/story/fannie-mae-freddie-mac-to-use-alternative-credit-scores-what-that-means-for-potential-homebuyers-11666643196

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Curious_George2 — Tue, 25 Oct 2022 19:42:56 GMT

It's great to hear they are finally modernizing this! I wonder how quickly this change will propagate through the lending world?

Short term, it's a little unfortunate that they skipped all the way ahead to FICO 10T and VS4.0, because those are currently some of the hardest scores for consumers to get access to. Hopefully that will get resolved quickly.

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Who_wuda_thought — Tue, 25 Oct 2022 21:34:17 GMT

@Curious_George2

@Curious_George2 wrote:
It's great to hear they are finally modernizing this! I wonder how quickly this change will propagate through the lending world?

Short term, it's a little unfortunate that they skipped all the way ahead to FICO 10T and VS4.0, because those are currently some of the hardest scores for consumers to get access to. Hopefully that will get resolved quickly.

I have mixed feelings as my profile stands now....FICO 10T comes in at about my lowest of any of my FICO scores (710-720's), but my VS4 is very close to highest of my FICO score 9's (760-770's). Of course, 10T is REALLY gonna tank when my 3 new cards from last weekend report 😂

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Anonymalous — Wed, 26 Oct 2022 12:24:32 GMT

Is this the first time 10T has been adopted in the wild?

The most shocking part of this is the government seems to be on the cutting edge.

Paywalled, but some interesting background from back in July:

https://www.wsj.com/articles/fico-scores-hold-on-the-credit-market-is-slipping-11627119003

The older WSJ article talks about how lenders are moving away from FICO. They mention Cap1 and Synchrony not using their scores in most lending decisions (Cap1 was a surprise to me), and that it's become a smaller factor for other banks like Chase and BoA. One reason is that lenders are now using a lot more data than appears on traditional credit reports. This obviously includes internal information they have based on pre-existing relationships, like deposit balances and overdrafts, but the article mentions that some lenders have even started to include things like magazine subscriptions and phone bills (the needs cash companies are referenced). Lenders are creating their own models, which they say are better able to predict who will default. There's also a push from regulators to help the 53 million US adults who are unscoreable and thus unable to access most credit beyond payday loans, which is being worked on in trial programs by companies like Chase. The pandemic was another influence, because the FICO scores don't reflect the deferment or forebearance programs that were put in place for things like student loans, which led to a big drop in confidence among lenders (48% felt less certain about their lending decisions compared to pre-pandemic). Doesn't help that Fair Isaac has raised the price to pull a report to $0.25 from $0.15 to $0.18 in the last few years (though that was after 25 years of no price hikes).

The main strength FICO had was a lock on the securitization market (packages of consumer loans), which was due to the requirements from Fannie Mae and Freddie Mac. And now that's broken.

Couple interesting quotes:

"JPMorgan still uses FICO scores for mortgages and auto loans but relies on FICO scores a lot less for many credit-card originations, the person said, particularly when the applicant has an existing relationship with the bank."

"FICO is becoming a smaller factor in underwriting decisions at Citizens Financial Group Inc. When shoppers apply for its buy-now-pay-later loans, the bank considers factors including the products they are buying, according to a person familiar with the matter. Fitness equipment, for example, is viewed as a sign of creditworthiness because it suggests a positive change in the applicant’s behavior. By next year, the bank plans to use cellphone, cable and utility-payment information to help vet loan applicants, the person said."

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Hex — Wed, 26 Oct 2022 15:29:12 GMT

I think it's only a partial paywall. I don't subscribe and I could access it. I believe the MarketWatch site allows 4 free articles a month. YMMV.

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

SweetCreditObsession — Thu, 27 Oct 2022 00:38:52 GMT

Hopefully these changes equate to more people qualifying for a mortgage. Now if only housing prices were more affordable...

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

LADave — Thu, 27 Oct 2022 01:35:17 GMT

Over the next few years, this could easily upend almost everything we think we know about predicting credit approval based on scores.

Because FICO 10T and VS 4.0 are new to most lenders, it's a little challenging to predict how they'll use the two types of scores together, and whether some (or even all) banks will give more priority to one score over the other. And as they get more comfortable with them, it's completely conceivable that FICO 10T and/or VantageScore 4.0 will supplant other versions of FICO for non-mortgage credit decisions (like credit cards, auto loans, etc.).

Other than Synchrony giving free VantageScore 4.0 scores to their customers, I'm not aware of any institution that gives free FICO 10T or Vantage Score 4.0s — and if that doesn't change, you'll need to pay for them. Assuming F-10T and VS4 become the default, any earlier version of your FICO scores will be the new "FAKO" scores, along with your VantageScore 3.0s. (I would be shocked if MyFICO isn't already considering providing VantageScore 4.0s along with FICO scores in the future, just to stay competitive.)

And perhaps one of the most underappreciated aspects of this change is that your past credit history will now make more of a difference than in the past, since both FICO 10T and VantageScore 4.0 measure how your credit health has been trending. Older versions of FICO and VantageScore don't do that. (The "T" in FICO 10T stands for "trending.")

From Investopedia (https://www.investopedia.com/fico-10-and-fico-10t-5072531)

FICO 10T represents a new take on credit scoring with the use of trended data, which looks at how consumers have managed their financial accounts over the previous 24 months or longer, including things such as whether they carried a balance from month to month or consolidated their debts during that time. This is meant to give lenders more insight into how someone handles their finances. FICO 10 and 10T scores can be used by lenders to assess credit risk when a person applies for credit cards, car loans, personal loans, and mortgages.

And from VantageScore (https://www.vantagescore.com/vantagescore-4-0-fact-sheet/):

VantageScore 4.0 is the first and only* tri-bureau credit scoring model to incorporate trended credit data newly available from all three national credit reporting companies. Trended credit data reflects changes in credit behaviors over time, in contrast to the static, individual credit history records that have long been available in consumer credit files and used in generic scoring models.

*Trending is no longer unique to VS4.

And since VantageScore 4.0 does not let closed accounts contribute towards AAoA for 10 years like FICO (I believe 10T still counts them), closing accounts could make a bigger difference in the future than it does today, particularly for older accounts.

Because trending is likely to become significant in the near future, it's a good idea to look at how our present behavior can affect our future approval.

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Zoostation1 — Thu, 27 Oct 2022 03:01:54 GMT

@LADave wrote:
Over the next few years, this could easily upend almost everything we think we know about predicting credit approval based on scores.
...

Other than Synchrony giving free VantageScore 4.0 scores to their customers, I'm not aware of any institution that gives free FICO 10T or Vantage Score 4.0s — and if that doesn't change, you'll need to pay for them. Assuming F-10T and VS4 become the default, any earlier version of your FICO scores will be the new "FAKO" scores, along with your VantageScore 3.0s. (I would be shocked if MyFICO isn't already considering providing VantageScore 4.0s along with FICO scores in the future, just to stay competitive.)
...

And since VantageScore 4.0 does not let closed accounts contribute towards AAoA for 10 years like FICO (I believe 10T still counts them), closing accounts could make a bigger difference in the future than it does today, particularly for older accounts.

Because trending is likely to become significant in the near future, it's a good idea to look at how our present behavior can affect our future approval.

I quoted the portions of what you wrote that really stand out to me...

First off. Is there even anyone besides Synchrony who provides a VS4.0 score at all? I've been under the impression that it's virtually impossible for consumers to purchase a VS4.0 score.

Secondly, VS4.0 not allowing closed accounts to be considered in aging the way FICO scores do for 10 years is a HUGE negative IMO. If anything I think it will benefit the bottom of the barrel sub prime lenders like Bank of Missouri and Credit One who have ridiculous fees on starter and rebuilding cards. This is going to make people think twice before closing out garbage accounts that no longer serve a purpose for them and just leech money. Currently there's no reason to keep an Applied Bank or Credit One account that's racking you for a $75 AF and has no benefits. If VS4.0 dings you on AAoA for closing it that gives people incentive to keep trash accounts open that should be closed once they've outgrown them. Granted people should be thinking finances over FICO (or Vantage in this case) but removign them from AAoA still encourages behaviors that are not beneficial and I don't think it's right to penalize people for making good financial decisions.

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

805orbust — Thu, 27 Oct 2022 06:50:57 GMT

I say bring it on. They adjust, so will we. The market will determine the way forward. I wonder how many models have been created in the time since FICO 5, 4, 2, that were the "new thing" that are irrelevant in mortgage apps.

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Anonymalous — Thu, 27 Oct 2022 07:00:08 GMT

@Zoostation1 wrote:
Secondly, VS4.0 not allowing closed accounts to be considered in aging the way FICO scores do for 10 years is a HUGE negative IMO. If anything I think it will benefit the bottom of the barrel sub prime lenders like Bank of Missouri and Credit One who have ridiculous fees on starter and rebuilding cards. This is going to make people think twice before closing out garbage accounts that no longer serve a purpose for them and just leech money. Currently there's no reason to keep an Applied Bank or Credit One account that's racking you for a $75 AF and has no benefits. If VS4.0 dings you on AAoA for closing it that gives people incentive to keep trash accounts open that should be closed once they've outgrown them. Granted people should be thinking finances over FICO (or Vantage in this case) but removign them from AAoA still encourages behaviors that are not beneficial and I don't think it's right to penalize people for making good financial decisions.

On the other hand, it will also discourage people from applying for a bunch of subprime cards in the first place, and it might make secured cards from more reputable lenders become even more attractive.

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Zoostation1 — Thu, 27 Oct 2022 11:18:30 GMT

I started with a secured Discover when I began rebuilding not quite a year ago, and I hope it would make that more attractive. However a lot of the people opening accounts with those subprime lenders are starting there because there's no other options. They're people who are getting declined for the more reputable ones. Regardless of that I would still be opposed to any model that penalizes the closing an account.

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

LADave — Thu, 27 Oct 2022 15:19:33 GMT

@805orbust wrote:
I say bring it on. They adjust, so will we. The market will determine the way forward. I wonder how many models have been created in the time since FICO 5, 4, 2, that were the "new thing" that are irrelevant in mortgage apps.

It's being mandated that FICO 10T and VantageScore 4.0 will be used in mortgage apps with Fannie Mae and Freddie Mac, so those scores will be far from "irrelevant."

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

pizzadude — Thu, 27 Oct 2022 13:41:28 GMT

This article is basically stating that the older FICO mortgage scores will be phased out and eventually replaced by FICO 10T and VS4.0. They're quoting what FHFA director ( Sandra Thompson ) stated recently at a Mortgage Bankers Association (MBA) Conference.

The biggest news in this article is the mention of a move from tri-merge to bi-merge reports for mortgage applicants.

As this article is second-hand information I would consider it to be unconfirmed, at least until there is a direct quote or source from FHFA.

The FHFA director said that FHFA has supported innovation and inclusion in the credit score models since 2014. The change to FICO 10T and VantageScore 4.0, however, will take time and require close coordination across the industry, meaning it will be a multiyear effort.

FHFA said that the agency will conduct outreach to stakeholders to ensure a smooth transition. Once implemented, lenders will be required to deliver FICO 10T and VantageScore 4.0 for each loan sold to Fannie Mae and Freddie Mac.

In addition to the new credit score models, FHFA also announced that enterprises will require lenders to provide credit reports from two of the three nationwide CRAs, going from a tri-merge to a bi-merge credit report requirement.

“We expect this change will reduce costs and further promote innovation while not compromising accuracy and predictiveness of a borrower’s ability to repay,” Thompson said during the conference

https://www.housingwire.com/articles/fhfa-to-replace-classic-fico-with-more-inclusive-credit-model-scores/

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Hex — Thu, 27 Oct 2022 14:07:17 GMT

Another article about it. It is only about FICO 10T.

https://www.nasdaq.com/press-release/fannie-mae-and-freddie-mac-will-require-the-use-of-fico-score-10-t-2022-10-24

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Anonymalous — Thu, 27 Oct 2022 14:06:49 GMT

@pizzadude, those are almost direct quotes from the FHFA press release:

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Validation-of-FICO10T-and-Vantage-Score4-for-FNM-FRE.aspx

FHFA expects that implementation of FICO 10T and VantageScore 4.0 will be a multiyear effort. Once implemented, lenders will be required to deliver both FICO 10T and VantageScore 4.0 credit scores with each loan sold to the Enterprises.

....

FHFA also announced today that the Enterprises will work toward changing the requirement that lenders provide credit reports from all three nationwide consumer reporting agencies (CRAs). Instead, the Enterprises will require lenders to provide credit reports from two of the three nationwide CRAs. The Enterprises will work with stakeholders on a plan for implementing the change from a tri-merge credit report requirement to a bi-merge credit report requirement.

There's also a fact sheet:

https://www.fhfa.gov/Media/PublicAffairs/Documents/CS-Fact-Sheet-2022.pdf

On October 24, 2022, the Federal Housing Finance Agency (FHFA) announced the
validation and approval of both the FICO 10T and the VantageScore 4.0 credit score
models for use by Fannie Mae and Freddie Mac (the Enterprises). After a multiyear
transition period, lenders will be required to deliver loans with both scores when
available.

....

On October 24, 2022, FHFA also announced that the Enterprises will require two,
rather than three, credit reports from the national consumer reporting agencies. This
change to the Enterprises’ credit report requirements is expected to reduce costs and
encourage innovation, without introducing additional risk to the Enterprises.

(Emphasis in original.)

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

pizzadude — Thu, 27 Oct 2022 14:38:19 GMT

Thanks @Anonymalous for finding the press release, I guess it's official now

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Revelate — Fri, 28 Oct 2022 16:10:16 GMT

So moving to either FICO 10T or VS 4.0 individually is stupidly easy for banks to do, I literally saw one make the decision to switch from EX FICO 2 to EX FICO 8 on a Friday afternoon and they were underwriting on the new score Monday morning. Technically this is easy.

Process wise this is easy too, because conventional mortgages are bought up by Fannie / Freddie anyway, there's none of the back history or checking against old data for performance metrics that we see for things like credit card underwriting and anything the bank itself carries on it's books.

I have no **bleep** idea though how bimerge is going to work, like at all. So we're going to get 4 scores total from 2 bureaus, which bureaus are picked and which of the 4 scores will matter when you no longer have a nice and tidy middle score?

I do wonder if the tiers will change to, I'm tempted to pull a FICO 1B report for EX just to see what my FICO 10T is on a gold plated file, it's over 50 points higher than EQ FICO 5 with my CO still open on it as it hasn't been deleted on that bureau yet (rude, yes I know my siggy is not right but lazy, 693 to 751).

Final question do we really *know* that VS 4 is discounting closed accounts? We've never been sure of that even on VS 3 AFAIK because Credit Karma and others are not reference AT ALL for the actual model and I don't think any of the CRAs have disclosed publicly? I do suspect if this change happens rather quickly (it's only 2-3 organizations, CoreLogic and a few others that need to update their tech presumably for the bimerge report but then the lenders need to be able to analyze which score is reference for underwriting so maybe more) that the scores will be come far more readily available.

Either way, wow. Finally.

Thank y'all for posting this.

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Revelate — Fri, 28 Oct 2022 18:00:09 GMT

My gold plated EX file for giggles (zero inquiry, *almost* AZEO, just installment utilization is the only "problem" with the file these days).

EX FICO 2: 821

EX FICO 10T: 846

I wonder what's missing for 4 more points

ETA: well crap I have 2 revolvers with balances actually, Zync had it's AF come due hahahahaha.

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Curious_George2 — Fri, 28 Oct 2022 19:50:44 GMT

@Revelate wrote:
My gold plated EX file for giggles (zero inquiry, *almost* AZEO, just installment utilization is the only "problem" with the file these days).

EX FICO 2: 821
EX FICO 10T: 846

I wonder what's missing for 4 more points

ETA: well crap I have 2 revolvers with balances actually, Zync had it's AF come due hahahahaha.

It cares what your utilization has been for the past 24 months, right?

Do we know if that's the only trend it cares about? Or will one's trends in, say, credit limits or the number of baddies, open accounts or closed accounts also affect 10T scores?

Re: New Mortgage score models accepted by Fannie Mae and Freddie Mac

Lou-natic — Fri, 28 Oct 2022 20:17:07 GMT

@Curious_George2 wrote:
@Revelate wrote:
My gold plated EX file for giggles (zero inquiry, *almost* AZEO, just installment utilization is the only "problem" with the file these days).

EX FICO 2: 821
EX FICO 10T: 846

I wonder what's missing for 4 more points

ETA: well crap I have 2 revolvers with balances actually, Zync had it's AF come due hahahahaha.
It cares what your utilization has been for the past 24 months, right?

Do we know if that's the only trend it cares about? Or will one's trends in, say, credit limits or the number of baddies, open accounts or closed accounts also affect 10T scores?

"The FICO Score 10 Suite is the newest FICO credit scoring model, consisting of two scores: FICO 10 and FICO 10T. The FICO 10T credit score includes trended data, which looks at individual consumers' payment and debt history for the previous 24-plus months to help calculate their credit scores." So it appears they would be looking at utilization for every month going back 2 years instead of just the current month like they do with the older scores. So no more cheating doing AZEO the month before you apply for your mortgage to "boost" your scores to make things look good on paper.