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New Mortgage score models accepted by Fannie Mae and Freddie Mac

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Hex
Valued Contributor

New Mortgage score models accepted by Fannie Mae and Freddie Mac

Message 1 of 31
30 REPLIES 30
Curious_George2
Valued Contributor

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

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. 

Message 2 of 31
Who_wuda_thought
Frequent Contributor

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

@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 😂

Scores as of May 20, 2024:





Message 3 of 31
Anonymalous
Valued Contributor

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

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."

 

Message 4 of 31
Hex
Valued Contributor

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

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. 

Message 5 of 31
SweetCreditObsession
Valued Contributor

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

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



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Message 6 of 31
LADave
Established Contributor

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

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.

Message 7 of 31
Zoostation1
Valued Contributor

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


@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.

Rebuild Started Nov 2021
June 2022 FICO 8:
June 2022 FICO 9:
May 2024 FICO 8:
May 2024 FICO 9:
Message 8 of 31
805orbust
Valued Contributor

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

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. 



Message 9 of 31
Anonymalous
Valued Contributor

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


@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.

Message 10 of 31
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