In October 2022, the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac will transition from the current credit scoring models to two newer models-FICO 10T and VantageScore 4.0.
The FHFA anticipates two positive outcomes with this transition.
-More creditworthy borrowers will obtain loans
-It will open the door to many from underserved populations
The unique features of these models are that they include what is termed “Trended Data”. Trended data is a term that is used to describe as looking at deeper trends in a consumer’s debt handling
behavior.
An example: As example: Two consumers have fairly equal credit histories, however Consumer A typically pays her balances off or pays more the minimum. Consumer B, on the other hand, does meet his payments on time, however he only pays the minimum. Trended data will consider Consumer A a lower risk than Consumer B.
The unique features of these models are that they include what is termed “Trended Data”. Trended data is a term that is used to describe as looking at deeper trends in a consumer’s debt handling
behavior.
An example: Two consumers have fairly equal credit histories, however, Consumer A typically pays her balances off or pays more the minimum. Consumer B, on the other hand, also meets his payments on time, however, he only pays the minimum. Trended data will consider Consumer A lower risk than Consumer B.
In addition to this change, FICO 10T and VantageScore 4.0 will also include rental, utilities, and telecommunications payments. This will allow more of the underserved population consider homebuying and qualify in many circumstances.
Favorable outcomes anticipated are:
-Trended data allows for a more thorough analysis of a borrower’s credit history and helps these borrowers access to mortgage credit and sustainable homeownership
-Trended data improves credit risk assessment and benefits borrowers who regularly pay off their revolving debt.
-Open the housing market to the nearly 18 million consumers who do not have credit, establish credit based on their rent, phone, and electric payments.
The FHFA anticipates moving to a bi-merge (requiring only the two credit reports) rather than a tri- merge (three credit reports) by the first quarter 2024.
