The Federal Housing Finance Agency (FHFA) announced this week that it has validated and approved two new credit scoring models for use by Fannie Mae and Freddie Mac Until now, both companies have relied on the classic FICO scoring model when assessing mortgage applications. Soon, both companies will also consider scores from the FICO 10T model and VantageScore 4.0. This could make it easier for homebuyers to secure a mortgage.
Until now, Fannie Mae and Freddie Mac – the two companies that buy and guarantee mortgages issued through lenders in the secondary mortgage market – have relied on just the classic FICO score to assess the creditworthiness of potential borrowers. As a result, the FICO score has become the dominant credit score across the mortgage market in the USA, being used in 90% of mortgage application decisions.
In a statement, the FHFA explained that their aim is to improve the accuracy of credit scoring models by taking into account a wider variety of payment histories. Both new credit scoring models incorporate data on rent, utilities, and telecom payments, all of which were often overlooked in the classic FICO score. The FHFA expects that implementation of FICO 10T and VantageScore 4.0 will take a few years. Eventually, however, mortgage lenders will be required to deliver both credit scores to Fannie Mae and Freddie Mac when selling on their mortgages.