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USA Today
11-07-2025
- Business
- USA Today
Fannie and Freddie no longer require FICO. Will it help you get a mortgage?
A regulator's decision to allow a big change to the way mortgages are underwritten is meeting a mixed reception from housing and finance professionals. 'Effective today, to increase competition to the Credit Score Ecosystem and consistent with President Trump's landslide mandate to lower costs, Fannie and Freddie will ALLOW lenders to use Vantage 4.0 Score,' Bill Pulte, the head of the Federal Housing Finance Agency (FHFA), tweeted on July 8. FHFA oversees Fannie Mae and Freddie Mac, the two giant government-sponsored enterprises that guarantee nearly half of all U.S. mortgage debt. Fannie and Freddie buy loans from banks and other financial institutions, so when they change their processes, it matters to lenders around the country, and the borrowers they serve. In this case, Pulte was referring to VantageScore, a company that offers credit scores – numerical representations of how likely a borrower is to repay a loan. Lenders who offer mortgages with the intention of selling them to Fannie or Freddie now have the option to use either VantageScore or to continue to use FICO, a competitor, to assess a borrower. 'FHFA's announcement to allow lenders to have a choice of credit score models to use when delivering loans to Fannie Mae and Freddie Mac could help to accomplish the goals of added competition in the credit score space and reduced consumer costs, if implemented correctly,' said the Mortgage Bankers Association, an industry group representing lenders, in a statement. 'We need more competition among credit bureaus and an end to monopolistic practices to lower prices and improve accuracy," Sharon Cornelissen, director of housing for the progressive Consumer Federation of America, told USA TODAY, in an email. "Director Pulte's action is a step in the right direction, and we hope he continues to work on reducing closing costs and broadening mortgage access for consumers.' But some consumer advocates believe the introduction of VantageScore into the mortgage space will actually decrease competition by consolidating industry share more firmly in the hands of TransUnion, Experian and Equifax, the three credit bureaus, which own the company. 'The big three credit bureaus are basically a functional monopoly,' said Chi Chi Wu, director of consumer reporting and data advocacy at the National Consumer Law Center. 'If you want a mortgage, you have to pull all three reports. You have no choice. They created VantageScore to try to drive FICO out of the market because they want the whole market. FICO is the only independent actor.' Ingmar Goldson, a Maryland-based consumer lawyer, echoed those beliefs. "Given that VantageScore is owned by the three major credit bureaus, I remain skeptical of any claims—whether from Fannie, Freddie, or the bureaus themselves—that this shift will truly benefit consumers in the long run," he told USA TODAY. Anthony Hutchinson, who heads public affairs for VantageScore, told USA TODAY that the company's model – the information it compiles on consumers to offer lenders information on their creditworthiness – is 'more holistic' than FICO's. Among other things, Hutchinson said, VantageScore's model is able to blend consumer information over a period of time. This 'trended' approach is more useful than just looking at a consumer at one moment in time, he argues, because it can show whether that person's financial health is improving or weakening. VantageScore also claims that there are 33 million Americans who are 'credit invisible' – that is, they have no credit score at all – and whom the company's more modern approaches to collecting data do better at scoring. But Wu says she doubts those numbers. In fact, the Consumer Financial Protection Bureau recently released research that suggests the number of Americans who are credit invisible is only about one-tenth that estimate, or roughly 2.7 million people. Wu also notes that FICO has also incorporated some of the more dynamic credit attributes VantageScore boasts about. In response to USA TODAY's request for comment, a FICO spokesperson emailed: 'FICO welcomes competition on a level playing field among credit score providers. We compete vigorously in every U.S. consumer credit market, and the FICO Score is freely chosen by lenders, investors, and other market participants because it is trusted as the most predictive and reliable credit score. FICO scores are the industry standard and preferred choice for evaluating creditworthiness in the mortgage process, regardless of whether the loan is conforming or non-conforming." Opening up the credit scoring space to real competition – and easing the path to homeownership for more Americans – gets bipartisan support even in a polarized Washington. Pulte's decision had its origins in legislation introduced by Republican Senator Tim Scott (South Carolina) and Democratic Senator Mark Warner (Virginia) years ago, Hutchinson points out. The legislation, the Credit Score Competition Act, was signed into law in 2018 as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act, but FHFA took several years to decide how to implement it. Senator Scott was one lawmaker urging quicker action on that front, in 2023. Wu believes the slower approach was for the best, given the number of stakeholders involved in making such a big transition. 'I think changing a well-thought out decision that was the result of a lot of process by an arbitrary tweet is bonkers,'' she said. "I have no idea if it complies with the 2018 law or the regulations, or if it's arbitrary and capricious.' Aside from concerns about the industry backdrop, VantageScore's presence might not even make a difference for consumers in terms of immediate savings. When asked about how much less one of their scores would cost compared to a FICO score, the company deflected the question to the credit and Experian did not immediately respond to a request for comment, and a TransUnion spokesperson referred USA TODAY to an industry group for more information. CFA's Cornelissen, despite her support for the step, acknowledges the savings will be minor: in the 'tens of dollars," she said. Read next: Down payments are the biggest homeownership hurdle. Why is Washington making them scarcer?
Miami Herald
08-07-2025
- Business
- Miami Herald
Mortgage borrowers are in for a huge change
If you've ever applied for a mortgage, you probably had to fill out your fair share of paperwork and hope for the best. The reality is that mortgage lenders don't give out home loans easily. They can't afford to. Don't miss the move: Subscribe to TheStreet's free daily newsletter When you're lending out hundreds of thousands of dollars in a single transaction, the standards are pretty high. That's why there's certain criteria you need to meet as a borrower to get yourself approved. Related: Major housing expert predicts huge housing market reset in 2025 For one thing, you need a reasonable debt-to-income ratio. Too much debt relative to your paycheck can be a huge red flag. You also need an income that can support the loan you're taking out - and the monthly payments you're taking on. On top of a reasonable amount of debt and income, you need to meet certain credit score requirements to qualify for a mortgage. Your credit score tells lenders how likely you are to repay a large debt like a mortgage on time. Related: Bank of America predicts major housing market changes are coming soon A history of missed or late payments will typically result in a lower credit score, making it harder to qualify for a mortgage - and understandably so. On the flip side, a great credit score could not only make it possible to get a mortgage, but qualify for a competitive interest rate. With mortgage rates being as high as they are today, having great credit could spell the difference between being able to afford a home or not. You might qualify for a mortgage with a lower credit score. But if you get stuck with an exorbitant interest rate because of it, it may not do you much good. For years, FICO was the gold standard for assessing borrowers looking to take out government-backed mortgages. But on July 8, the Federal Housing Finance Agency indicated that mortgage lenders can begin using VantageScore, a rival of FICO, to assess borrowers' creditworthiness. "To increase competition to the Credit Score Ecosystem and consistent with President Trump's landslide mandate to lower costs, Fannie and Freddie will allow lenders to use Vantage 4.0 Score with no current requirement to build new infrastructure," Federal Housing Finance Agency director Bill Pulte announced in a social media post. Related: Dave Ramsey warns Americans to avoid major money mistake when buying a home Pulte said this decision would not only open mortgages up to a larger pool of borrowers, but potentially result in lower closing costs across the board, as it may be more cost-effective for lenders to pull VantageScore data than to pull FICO scores. Shares of Fair Isaac Corp (FICO) stock plunged almost 9% following the announcement. Created in 2006, VantageScore has become an increasingly popular source of credit information, so it's not surprising to see it gain acceptance as a means of vetting candidates for government-backed mortgages. The announcement comes on the heels of an inquiry into mortgage-related junk fees the Consumer Financial Protection Bureau has been pursuing since 2024. "Mortgage lenders have shared that costs for credit reports and scores have increased, sometimes by 400% since 2022," said former CFPB Chairman Rohit Chopra last year. This change could be a positive one for mortgage borrowers as well as lenders. More on homebuying: The White House will take surprising approach to curb mortgage ratesHousing expert reveals surprising ways to reduce your mortgage rateDave Ramsey predicts major mortgage rate changes are coming soonWarren Buffett's Berkshire Hathaway sounds the alarm on the 2025 housing market The question mark, however, is whether mortgage lenders will actually use VantageScore on a broader scale. Because FICO has long been the go-to source for consumer credit scores, there's a good chance lenders will be slow to ditch it. The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Yahoo
08-07-2025
- Business
- Yahoo
The company behind your credit score is plunging on the stock market after a White House announcement
Mortgage lenders will soon have a new way to assess borrowers applying for government-backed loans. That sent the stock of America's biggest credit score company plunging Tuesday. Federal Housing Finance Agency director Bill Pulte announced that lenders may start using VantageScore, a rival to the Fair Isaac Corporation, the company behind the widely recognized FICO score, to assess creditworthiness for government-sponsored Fannie Mae or Freddie Mac mortgages. 'Effective today, to increase competition to the Credit Score Ecosystem and consistent with President Trump's landslide mandate to lower costs, Fannie and Freddie will ALLOW lenders to use Vantage 4.0 Score with no current requirement to build new infrastructure,' Pulte wrote in a Tuesday social media post. Pulte said that Tuesday's announcement would expand credit access and bring down closing costs. The announcement comes as FICO's credit check fees have reportedly surged in recent years. Shares of FICO (FICO), VantageScore's biggest rival, tumbled more than 17% Tuesday afternoon following the news. For decades, FICO has dominated the mortgage market, with Fannie Mae and Freddie Mac accepting only FICO scores. But in recent years, VantageScore, created in 2006 by the three major credit bureaus (Equifax, Experian and TransUnion) as a FICO competitor, has gained traction. Before Tuesday's announcement, mortgage lenders were already beginning to use VantageScore. In 2022, during President Joe Biden's administration, the FHFA announced that after a multi-year transition period, lenders would be required to deliver mortgage loans with scores from both FICO and VantageScore to ensure that a person's creditworthiness was properly vetted. Last year, the Consumer Financial Protection Bureau announced a public inquiry into 'junk fees' that increase mortgage closing costs, specifically mentioning the recent rise in the cost of obtaining a credit report. 'The market for credit scores has long been dominated by one company's algorithm: the Fair Isaac Corporation, which sells the FICO score,' former CFPB chairman Rohit Chopra said last year in a speech to the Mortgage Bankers Association. 'Mortgage lenders have shared that costs for credit reports and scores have increased, sometimes by 400% since 2022.' In May, Pulte first posted on social media about the increase in credit reports, writing: 'Why do some credit reports cost double (Biden's term) from what they did during President Trump's first term?' Both FICO and VantageScore issue a credit score between 300 and 850 to potential borrowers with the goal of predicting the likelihood that a person will fall behind on debt repayments. A higher score means you're less likely to miss a payment, but the two companies have differing methodologies to arrive at that score. In a separate social media post, Pulte said Tuesday's directive will enable Americans to use their rent to qualify for a mortgage, rather than relying solely on credit history based on credit cards and loans. Unlike FICO, VantageScore does take rent payments into account if those payments are reported to Equifax, Experian and TransUnion, according to VantageScore's website. Despite the drop in FICO's stock on Tuesday, the threat to FICO's market dominance might be limited, said Jaret Seiberg, a housing policy analyst at TD Cowen. 'We have trouble seeing lenders abandoning FICO just because they are now able to use Vantage Score,' Seiberg wrote in a note to clients Tuesday. 'This is because lenders have very little experience using Vantage Score when it comes to mortgages.' Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
