Releasing historical credit scores for tens of millions of loans will help lenders prepare for the transition to VantageScore 4.0 next year. FICO Score 10 T data will be released next.
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Mortgage lenders continue to prepare for new, more inclusive credit scoring models that regulators expect them to adopt next year as part of a drive to make the borrower qualification process fairer and more competitive.
Fannie Mae and Freddie Mac released historical data this month in an effort to smooth the adoption of the new VantageScore 4.0 model. The mortgage giant said it is working with federal regulators to provide similar historical data for the FICO Score 10 T “as soon as possible.”
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The Federal Housing Finance Agency (FHFA) program launched two years ago requires lenders to begin using the new Vantage 4.0 and FICO Score 10 T-scoring models in the fourth quarter of 2025 for any loans made to Fannie Mae and Freddie Mac.
“The release of historical credit scores for tens of millions of loans provides a broad range of resources to help market participants prepare for this shift,” FHFA Director Sandra Thompson said in announcing the release of VantageScore 4.0 data. “These modern credit scores The use of models will enhance risk management while further promoting sustainable access to credit for consumers.”
In addition to requiring lenders to phase out the classic FICO scoring model that has been used for nearly three decades, the FHFA will allow lenders to offer loans with credit reports from any two national consumer reporting agencies, rather than obtain a “triple merger” of all three. Personal report. The move to give lenders the option to order “double-consolidated” credit reports is intended to simplify the process and save borrowers money.
When the Consumer Financial Protection Bureau (CFPB) launched its investigation into mortgage “junk fees” in May, it said it was concerned about the rising costs of credit reporting and scoring.
“To reduce the cost of mortgage credit reporting, it is critical to limit the obstruction of certain data monopolies,” CFPB Director Rohit Chopra told an audience of industry leaders attending the Mortgage Bankers Association’s annual meeting this spring.
Credit reports from the three major consumer reporting agencies are used to generate credit scores for individual borrowers. These scores are traditionally generated using an algorithm developed by the Fair Isaac Corporation (FICO).
Lenders typically pay credit reporting agencies based on each individual’s credit score, and agencies pay FICO a licensing fee. VantageScore is a joint venture of three national credit reporting agencies (Equifax, Experian and TransUnion) to develop a credit scoring model to compete with FICO.
“Currently, the cost of a single credit report typically ranges from $18 to $30 for a single report, $24 to $40 for a combined report, and $40 to $60 for a triple combined report provided by a dealer,” Chopra said. “When a mortgage credit report and score is requested When making mortgage underwriting decisions, Equifax, Experian and TransUnion typically set the wholesale price dealers pay and then pass it on to users, often by charging a premium for services in the underwriting process. compensate.
Chopra also noted that when FICO changed its pricing structure in November, abandoning volume-based pricing, costs for small lenders rose more than 400%.
“FICO now charges consumer reporting companies a license fee of $3.50 for each FICO score used through 2024, or approximately $10 for all three scores if a lender obtains a triple consolidated report and score bundle,” Chopra said. USD “If two borrowers apply together, the fee is doubled. “
During the company’s second-quarter earnings call, FICO CEO Will Lansing said the company was “evolving from a 30-year pricing freeze” and that the price increases were aimed at “narrowing the gap between the value we offer versus what we charge.” the gap between them”.
FICO is increasingly willing to share its pricing in an effort to increase transparency, he said.
“It’s important for everyone to understand that we’re talking about single-digit bundles that cost consumers about $6,000,” Lansing said of the total mortgage closing costs.
More inclusive and accurate scoring
In addition to introducing competition, proponents are touting the new VantageScore 4.0 and FICO Score 10 T credit scoring models as more inclusive and accurate.
VantageScore claims that when lenders are required to start using VantageScore 4.0 next year to determine whether borrowers qualify for loans that will be sold to Fannie Mae and Freddie Mac, the pool of eligible mortgage applicants will increase by more than 2.5 million borrowers , equivalent to $1 trillion in potential new mortgage lending.
“This is an important and necessary step to modernize the outdated and exclusive credit scores that lenders in the traditional mortgage market are forced to use,” VantageScore executive Anthony Hutchinson said in a statement.
Fair Isaac claims that lenders using FICO Score 10T can increase loan originations by up to 5% without taking on additional credit risk, or continue to make the same number of loans while reducing default risk and losses by up to 17%.
A growing number of lenders have used the FICO Score 10 T to determine whether a borrower qualifies for a nonconforming mortgage loan that Fannie Mae and Freddie Mac do not qualify to purchase.
In April, Fair Isaac said it had signed up customers with $100 billion in annual mortgage originations to use FICO Score 10 T. FICO also contracts lenders through strategic relationships with Lenders One Cooperative, a national alliance of independent mortgage bankers, banks and credit unions.
On Monday, FICO announced a partnership with the National Minority Mortgage Bankers Association (NAMMBA) to offer the Score a Better Future credit education course to mortgage professionals seeking NAMMBA Certified Community Lender (CCL) certification.
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