At a press conference on Wednesday, April 22 (attended virtually by RISMedia), Director of the Federal Housing Finance Agency (FHFA) Bill Pulte and Housing and Urban Development (HUD) Secretary Scott Turner announced that “effective immediately,” government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac will begin accepting new credit scores, VantageScore 4.0 and FICO 10T, for mortgage underwriting. Fannie and Freddie’s selling guides will be updated to include these new permitted credit scoring systems as well.
“Credit scores help set mortgage rates and (people) access homeownership,” said Pulte during the conference. “Lenders use a credit score to determine who gets a mortgage. If you don’t have a credit score, you can’t get a credit score, then you can’t get a home—and that’s something that obviously this will help fix.” Secretary Turner also confirmed at the conference that HUD will begin accepting VantageScore 4.0 and FICO 10T credit scores for Federal Housing Agency-backed (FHA) loans.
“It’s common sense that allowing more credit score models to compete will equip mortgage lenders with more information to make a very sound choice, but will also give prospective homebuyers an opportunity to have more of their data considered when figuring out the terms of their loan,” said Turner. “Americans looking to buy a home will be able to have more of their financial data considered as has been stated when applying for a mortgage.”
Unlike older FICO credit scores, these credit scoring systems include a loan applicant’s rental and utility payment history in their scoring. Pulte said at the press conference that it is “nonsense” for credit scores to not include rental payment history, and that this change will open up mortgages to a wider range of trustworthy borrowers.
“If you pay your rent for the last 10 years, that’s more predictive than whether you were 21 years old and maybe didn’t pay a medical bill at a local hospital,” said Pulte. “If you paid your rent for 10 years, that should be factored into your credit score.”
The change was praised by Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit. In a public statement, he “applaud(ed)” Pulte and Turner for their work in “modernizing the credit scoring system.”
“Expanding the set of acceptable credit scoring models to include VantageScore 4.0 and FICO 10T will help foster a more transparent and dynamic market, broaden access to sustainable credit, and put downward pressure on costs for GSE and FHA borrowers,” said Broeksmit. “Because both models have already been tested and validated, we look forward to a speedy expansion of the program to all lenders and for all loans, and to implementing FICO 10T to ensure the benefits of competition are extended market-wide.”
While praising this reform, Broeksmit added that “MBA will also continue to press for reforms of the tri-merge credit reporting requirement, including implementing a single-score requirement for GSE borrowers with strong credit profiles, to encourage greater competition and lower costs for consumers.”
“Tri-merge credit reporting” refers to the requirement that underwriters review an applicant’s credit reports from all three major bureaus—Experian, Equifax and Transunion—for a GSE-backed loan. Critics of the requirement argue it creates a monopoly and discourages competitive pricing for credit scoring.
“I think (allowing the new credit scores) is going to be advantageous in particular for first-time homebuyers,” said Turner at the press conference, when asked if he believes this change will boost the home-selling market. “The competition, the innovativeness opens it up for more people to come in and purchase homes.”
During the press conference, Pulte also argued that this will make an initial public offering (IPO) for the GSEs more attractive to investors, if there ever was an IPO. The Trump administration took office with plans to privatize Fannie and Freddie, which have been under government conservatorship since the 2008 financial crisis. When asked about the administration’s plans for an IPO at the conference, Pulte answered, “There’s only one gentleman who knows the status of the IPO and his name’s President Donald J. Trump, and so I would defer to him on the timing, but I would say this, and Secretary Turner knows this, is we stand ready every day to execute the president’s vision.”
