The Federal Housing Finance Agency (FHFA) announced approval of the FICO 10T and VantageScore 4.0 credit score models for use by Fannie Mae and Freddie Mac (the GSEs).
For nearly 20 years, the GSEs have relied on Classic FICO as their only credit score model. This announcement is the result of a years-long effort by FHFA and the GSEs to implement Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act which required FHFA and the GSEs to establish standards and criteria for validating and considering a borrower’s credit score. The new models improve accuracy by capturing new payment histories for borrowers when available, such as rent, utilities, and telecom payments.
FHFA also announced that the GSEs will work toward changing the requirement that lenders provide credit reports from all three nationwide consumer reporting agencies (CRAs). Instead, the GSEs will require lenders to provide credit reports from two of the three nationwide CRAs. The GSEs has stated that they will work with stakeholders on a plan for implementing the change from a tri-merge credit report requirement to a bi-merge credit report requirement.
“[This] decision will benefit borrowers and the GSEs, along with maintaining safety and soundness,” said FHFA Director Sandra Thompson in the press release accompanying the announcement. “While implementing the newer credit score models is a significant change that will take time and require close coordination across the industry, the models bring improved accuracy and a more inclusive approach to evaluating borrowers.”
FHFA expects that implementation of FICO 10T and VantageScore 4.0 will be a multiyear effort. Once implemented, lenders will be required to deliver both FICO 10T and VantageScore 4.0 credit scores with each loan sold to the GSEs. FHFA and the GSEs will conduct outreach to stakeholders to ensure a smooth transition to the newer credit score models.