On October 24, 2022, the Federal Housing Finance Agency (“FHFA”) announced that Fannie Mae and Freddie Mac (the “GSEs”) will be making a change to approve use of two new credit scoring models, FICO 10T and VantageScore 4.0.
FHFA does expect the transition to the new credit score models to be a multi-year effort as the current Classic FICO score model has been in use for almost twenty years. “While implementing the new 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,” said FHFA Director Sandra L. Thompson.
The FICO 10T and VantageScore 4.0 focus on “trended data” by looking at the consumer’s previous 24 months or longer of account balances, instead of more recent account balances like the Classic FICO score model. This allows creditors to see if a consumer has balances that are trending up, and may be a higher risk, than someone with balances that are low or trending down. The new models will also take into account a fuller payment history by factoring in rent payments, utilities and telecom payments.
Additionally, FHFA announced that the GSEs are working towards a change in requirements so that lenders will need to provide two credit reports from national credit reporting agencies instead of three. Once the new requirements become mandatory, lenders will be expected to provide a bi-merge credit report instead of a tri-merge credit report.
To view the FHFA Fact Sheet regarding the approval of the new credit score models, click here.
DocMagic will continue to monitor the implementation of the new requirements and any related form updates.
