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Mortgage industry trade groups said Friday they need Fannie Mae and Freddie Mac to provide “critical implementation guidance” before lenders can start using the VantageScore 4.0 algorithm authorized by the Trump administration this week.
Mortgage lenders – and perhaps even Fannie and Freddie themselves – were caught by surprise Tuesday when Federal Housing Finance Authority Director Bill Pulte announced on social media that the mortgage giants would allow lenders to use Vantage Score 4.0 “effective today.”
While the FHFA has been working for several years on plans to allow lenders to use both VantageScore 4.0 and the new FICO Score 10 T algorithms, a timetable for making the switch during the fourth quarter of this year was suspended in January, without explanation.
Because the FHFA did not publish formal guidance on Pulte’s social media decree, lenders were left wondering how Fannie and Freddie are supposed to implement it.
In a joint announcement Friday, four high profile industry trade groups said Pulte’s July 8 directive “was a promising first step to our shared goal of a more efficient, more transparent, and more competitive credit scoring system that serves as many creditworthy Americans as possible.”
But credit score standards “are embedded throughout the mortgage ecosystem and the incorporation of Vantage into that ecosystem will require [Fannie Mae and Freddie Mac] to provide lenders, investors, and other market participants critical implementation guidance,” the trade groups said.
The statement was issued by the Mortgage Bankers Association, the American Bankers Association, the Housing Policy Council, and the Structured Finance Association.
The FHFA announced in 2022 that it had signed off on VantageScore 4.0 and a new FICO score, FICO 10 T, for future use by Fannie and Freddie. Under a timeline proposed in 2023, lenders were to move from the current Classic FICO credit score model and start using both VantageScore 4.0 and FICO Score 10 T by the end of this year.
Fannie and Freddie released historical data aimed at smoothing the adoption of the new VantageScore 4.0 model last year, and said they were working to make similar historical data for the FICO Score 10 T available “as soon as possible.”
In January, the mortgage giants said the release date for FICO Score 10 T historical data remained “TBD” — to be determined — and that they were no longer planning to require that lenders start using the new scores in Q4 2025.
Pulte’s social media post came out of the blue, leaving mortgage lenders to wonder:
- Will lenders be allowed to submit loans reviewed using only VantageScore 4.0, or will Fannie and Freddie also require FICO Classic scores currently in use?
- Are there still plans to allow Fannie and Freddie to accept loans scored by the new FICO Score 10 T?
- Will loan level pricing adjustments (LLPAs — fees charged by Fannie and Freddie according to borrower risk) be different for borrowers scored by VantageScore 4.0?
- Are private mortgage insurers (required by Fannie and Freddie when borrowers put less than 20 percent down) ready to back loans scored using only VantageScore 4.0?
- Will investors in mortgage-backed securities (MBS) — the ultimate source of funding for most mortgages — treat loans scored using VantageScore 4.0 the same as loans scored with FICO Classic?
Rating agencies, banks and investors still use FICO Classic, mortgage industry insider Christopher Whalen said on X Wednesday, and “there is no track record” of how mortgages evaluated using VantageScore 4.0 or FICO Score 10 T will perform.
Whalen, who has connections at Fannie and Freddie, also said the mortgage giants weren’t informed in advance of Pulte’s decision to let lenders use VantageScore 4.0.
“The transition to a competitive market for credit scores raises a number of implementation questions and concerns that [Fannie and Freddie] will need to address before they can take delivery of loans that rely on new scores – including Vantage Score 4.0 and/or FICO 10T – for pricing or eligibility,” mortgage industry trade groups said Friday.
“We appreciate the positive response from our industry partners and look forward to working closely together to implement this historic change for the American consumer,” an FHFA spokesperson told Inman in a statement.
But Pulte was on the defensive Thursday, posting a screenshot on X of an inquiry the FHFA received from a reporter at an industry trade publication.
“We’re told that Mr. Pulte did not inform the Treasury Department, HUD and other federal agencies ahead of his announcements, and that he’s on ‘thin ice’ with several senior Trump administration officials,” Matt Birkbeck of Asset-Backed Alert allegedly asked.
Pulte also posted a statement from FHFA spokesperson Tallman Johnson, who said Pulte and the FHFA “will not be intimidated by lobbyists, who may or may not be registered and who seek to cover for monopolistic corporations who have been ripping off Americans for decades.”
That’s an apparent allusion to the story published by Asset-Backed Alert Friday, “FHFA’s Pulte Falls Out of Trump’s In-Crowd,” which quoted several anonymous sources, including a lobbyist, “a private equity executive” and “a mortgage professional.”
Asset-Backed Alert’s story quoted the mortgage professional as saying Pulte is “on thin ice” with Trump administration officials, while the lobbyist and other sources were quoted as saying the FHFA director has been “largely cut out” of planning Fannie and Freddie’s future.
“President Trump is committed to making it easier and more affordable to achieve the American dream of homeownership by eliminating unnecessary red tape, increasing supply and lowering costs,” a White House spokesperson told the publication. “The White House is appreciative of Mr. Pulte’s efforts.”
Pulte has said in the past he was “not happy” about price increases levied by the company behind the FICO score algorithm, Fair Isaac, which an industry trade group, Community Home Lenders of America, claims total 700 percent over the last 3 years.
VantageScore is a joint venture of Equifax, Experian, and TransUnion to take on FICO. The company claims implementation of VantageScore 4.0 will boost the eligible pool of mortgage applicants by 5 million borrowers.
But FICO Score 10 T also considers “trended credit data and additional data such as rent, utility, and telecom payments, which are not currently considered as part of the Classic FICO score,” Fannie Mae noted in a January update on plans to transition to the new scores.
It’s also unclear if the FHFA has abandoned its original proposal to move from tri-merge to bi-merge credit reporting, which would have allowed lenders to pull credit scores from two credit bureaus instead of three.
TransUnion had opposed plans to move to bi-merge reporting, claiming that using only two credit scores “will often result in an incomplete and inaccurate picture being painted of a potential borrower — particularly if a consumer’s most favorable set of credit data is the one that gets excluded.”
In a blog post last month, MBA President Bob Broeksmit characterized tri-merge reporting as “an anachronism from the days when there were significant disparities in coverage by the credit bureaus.”
Broeksmit said the MBA has been studying the feasibility of using a single credit report to score government-guaranteed loans, an approach that “would mirror that of most other consumer finance markets, including home equity loans and auto loans – which have seen success with this structure.”
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