Fannie Mae, Freddie Mac Move Beyond FICO With New Credit Scoring Model To Boost Competition

On Wednesday, Freddie Mac (OTC:FMCC) and Fannie Mae (OTC:FNMA) announced their acceptance of mortgages evaluated using VantageScore 4.0 to reduce costs for American homebuyers and stimulate competition in the mortgage credit-scoring market.

The mortgage housing behemoths will initiate a limited roll-out to approved lenders. VantageScore is a credit score modeling and analytics firm co-owned by Equifax (NYSE:EFX), Experian (OTC:EXPGF), and TransUnion (NYSE:TRU).

Scott Turner, Secretary of the Department of Housing and Urban Development (HUD), said that adopting new credit-scoring models will expand access to homeownership, especially for borrowers overlooked by older systems.

Bill Pulte, the Federal Housing Finance Agency’s (FHFA) director, proposed allowing Fannie Mae and Freddie Mac to use VantageScore 4.0 in July, marking the first major update to mortgage credit scoring models in decades.

Shares of rival Fair Isaac Corp. (NYSE:FICO) closed 6.42% lower at $970.17 on Wednesday, following the news.

Mortgage Credit Scoring Overhaul Begins

The FHA, Fannie Mae, and Freddie Mac are adopting new mortgage credit score models for the first time in decades, following a 2018 law signed by President Donald Trump that pushed for more advanced underwriting standards.

Meanwhile, there is also a push to introduce FICO Score 10T. FICO welcomed the FHFA's move to release historical data for FICO Score 10T, enabling the mortgage industry to assess its performance across portfolios and economic cycles as part of broader mortgage credit scoring modernization.

Launched in 2020, the model is designed to better predict and manage credit risk, and its rollout marks a key step in updating industry standards.

After extensive review, the Federal Housing approved VantageScore 4.0 and FICO Score 10T as new credit score models in 2022.

This move comes on the heels of a probe launched by Sen. Josh Hawley (R-MO) into the pricing of credit scoring in the mortgage market by Fair Isaac Corp in March. Hawley contended that the rising cost of credit scores was placing an undue burden on homebuyers in an already inflated market.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image via Shutterstock