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VantageScore 4.0 will now be accepted by Fannie Mae and Freddie Mac

Read entire article from INMAN, HUD, FHFA greenlight VantageScore 4.0 for home loans | Inman Real Estate News

Detailed summary

• The Federal Housing Finance Agency (FHFA) and the Department of Housing and Urban Development (HUD) have announced that VantageScore 4.0 will be accepted by Fannie Mae and Freddie Mac, as well as the Federal Housing Administration, for use in mortgage lending, marking a significant shift away from the traditional reliance on legacy FICO models.
• This change is intended to modernize the underwriting process and expand access to credit, particularly for creditworthy borrowers who may have been overlooked by older systems, according to HUD Secretary Scott Turner, who stated that embracing additional predictive credit scoring models will help expand access to homeownership.
• The move is part of a broader effort to incorporate more predictive models into the mortgage process, with FHFA Director William J. Pulte noting that the change will bring more predictive models into the mortgage process and help borrowers who consistently pay rent qualify for home loans.
• VantageScore 4.0 uses trended credit data, which provides a more comprehensive look at a borrower’s credit history, and can incorporate payment histories such as rent and utilities, allowing for a more accurate assessment of borrower behavior and potentially bringing more “credit invisible” consumers into the market.
• The change is expected to increase competition in the credit scoring market, which has long been dominated by a single model, and could reduce costs for lenders and expand access to mortgage credit, with credit bureau Experian working with lenders to support the transition and stating that this moment creates a clear path to demonstrate the real-world performance of VantageScore 4.0 at scale.
• The policy change is expected to roll out gradually as lenders update their systems and underwriting processes, but it signals one of the most significant shifts in mortgage credit evaluation in decades, building on the Credit Score Competition Act and a 2022 decision by the FHFA to approve both VantageScore 4.0 and FICO 10T for use in mortgage lending.
• Fannie Mae has updated its selling guide to allow lenders to use VantageScore 4.0 immediately, calling the change a key milestone in its credit score modernization effort, and the FHFA is also advancing plans to incorporate FICO Score 10T alongside VantageScore 4.0 as part of its broader modernization effort.