FHFA Approves New Credit Score Models for GSE Loans

The Federal Housing Finance Agency (FHFA) announced earlier this week that it had officially approved the use of two new credit scoring models by government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac: the FICO 10T model and the VantageScore 4.0 model

The approval of the new models is the culmination of a years-long effort on FHFA’s part to modernize the credit score models used by the GSEs, who have used the Classic FICO model for the past 20 years. FHFA began to explore new models in 2014 and submitted a request for information on alternative credit scores in 2017. In 2018, Congress passed legislation requiring FHFA to develop a process for approving and validating credit score models used by the GSEs.

In a fact sheet accompanying the announcement, FHFA says the new credit score models will provide the GSEs more accurate information on a borrower’s credit and expand access to mortgage credit to worthy borrowers. Both FICO 10T and VantageScore 4.0 include payment information not often included in older credit score models, including payment history for rent, utilities, and phone/internet services.

Once the GSEs have adapted the new models into their systems, lenders will be required to submit both the FICO 10T and VantageScore 4.0 credit scores for every loan they sell to the GSEs. FHFA expects transitioning to the new scores will be a multiyear process.

FHFA also announced the GSEs will work to change their underwriting guidelines so lenders are no longer required to provide credit reports from all three nationwide consumer reporting agencies. Instead, the GSEs will require lenders to provide credit reports from two of the three agencies.