DISCLAIMER: The opinions and comments expressed in this post/video and all posts/videos of the “Analyst Roundup” Substack are intended to be objective and nonpartisan. These opinions and comments only reflect those of the Author and do not reflect those of any other individual or party, especially the Author’s employer(s) or affiliations.
Yesterday, Federal Housing Finance Administration Director, Bill Pulte, announced that the mortgage-backing Government Sponsored Enterprises under his leadership, Fannie Mae and Freddie Mac, will begin accepting use of VantageScore 4.0 by lending institutions. This will be in addition to the existing use of the FICO score, which is the most common within the mortgage industry, and is synonymous with what households consider to be their “credit score.”
This expansion to allow for VantageScore, developed and owned by the three major credit reporting agencies (TransUnion, Experian, and Equifax) was initially called for as part of legislation passed into law in 2018. However, implementation has been rather slow, with an implementation timeline of later this year “delayed” by the Biden Administration the week before the end of its term.
The move is intended to expand the pool of qualifying mortgage applicants.
"VantageScore thanks Director Pulte for his resolute focus on enacting credit score competition as required by the law, and promoting efficiency and affordability for creditworthy Americans," said Silvio Tavares, President and CEO of VantageScore (per press release). "Under Director Pulte's leadership, the FHFA's long-expected decision to accept VantageScore 4.0 will revolutionize the American mortgage market and grant millions of creditworthy Americans the golden opportunity to own their homes."
While FICO scores focus mostly on activity with traditional lending institutions, VantageScore also incorporates other household obligations requiring regular payment, including rent and utility bills. VantageScore can also be established and calculated with a shorter period of activity compared to FICO.
While this move is intended to include households with minimal “credit” histories into the housing market, research published by The Urban Institute last December reflects skepticism with respect to immediate impact:
“One big caveat is that the data do not allow us to see loans that were previously denied or loans that were made as Federal Housing Administration loans that could become eligible for GSE financing, so we cannot assess how many of these would be approved with the new scores and inputs. This limited analysis suggests that there would be little initial impact in the two transitions proposed for borrowers previously qualifying for GSE mortgages, though even there, we could see a larger impact over time because of the increase in competition this change is likely to bring.”
There are ways online to obtain your VantageScore for free, and some financial institutions (like Chase) offer them to their customers. Implementation and actual activity will show if this move has the desired impact of increasing the qualifying mortgage applicant pool, which if successful, could increase currently-sluggish homebuying activity.
Share this post