WASHINGTON — Fannie Mae and Freddie Mac are expanding the use of VantageScore 4.0 to all approved mortgage lenders, ending a limited rollout and giving lenders another option beyond traditional FICO scores when originating loans for sale to the government-sponsored enterprises.
Fannie Mae formally announced Wednesday that VantageScore 4.0 is now broadly available to all Fannie Mae-approved lenders. The expansion follows a directive from U.S. Federal Housing Director Bill Pulte that both Fannie Mae and Freddie Mac make the alternative credit-scoring model available to all of their approved lenders.
The move represents a potentially significant change in mortgage underwriting and increases competition in a credit-scoring market long dominated by Fair Isaac Corp.’s FICO scores.
“Fannie and Freddie’s initial rollout of VantageScore has been incredibly successful, with 50 LENDERS DELIVERING LOANS,” Pulte said in announcing the expansion last week. “So, EFFECTIVE IMMEDIATELY, I’m instructing Fannie and Freddie to approve ALL lenders to use VantageScore.”
Pulte added: “FICO has enjoyed a monopoly. No more.”
Reuters reported shares of Fair Isaac fell sharply following Pulte’s announcement.
Use of VantageScore Is Optional
Under Fannie Mae’s expanded program, approved lenders may elect to use VantageScore 4.0 from each of the three major credit bureaus — Equifax, Experian and TransUnion — through a three in-file merged credit report when originating eligible mortgages through Desktop Underwriter and delivering those loans to Fannie Mae.
The change does not require lenders to abandon FICO.
Fannie Mae said adoption of VantageScore 4.0 is optional, and lenders may continue using eligible Classic FICO scores or choose VantageScore 4.0 on eligible loans.
When VantageScore 4.0 is used, the score must be requested from all three credit bureaus and the same scoring model must be used for every borrower on a particular loan, Fannie Mae said.
The choice of scoring model is therefore made at the loan level rather than separately for individual borrowers.
Freddie Mac began accepting mortgages assessed with VantageScore 4.0 in April through an initial group of approved sellers. The GSE said at the time that VantageScore loans could be delivered through its Cash or Guarantor purchase paths and would be eligible for securitization.
Broader Credit-Score Competition
The expansion is part of a multiyear federal effort to modernize the credit scores used in the mortgage market and increase competition.
VantageScore was founded in 2006 and is jointly owned by Equifax, Experian and TransUnion.
The model differs from older FICO models in part through its use of newer credit data and its ability to score some consumers who have limited traditional credit histories. It also incorporates information such as on-time rent payment history, according to Freddie Mac.
VantageScore said the model can score approximately 33 million more U.S. adults than traditional mortgage credit-scoring models, including nearly 5 million additional consumers it describes as mortgage-ready. Those figures come from VantageScore and have not been independently verified.
The expanded availability could consequently be important for lenders serving borrowers with thinner credit files, although approval for a mortgage continues to depend on broader underwriting requirements and not solely on a borrower’s credit score.
FICO 10T Also Approved
VantageScore 4.0 is not the only newer scoring model approved for the mortgage market.
U.S. Federal Housing has approved three models for use within the modernized framework: Classic FICO, VantageScore 4.0 and FICO Score 10T. Fannie Mae and Freddie Mac have said implementation of FICO Score 10T will come later.
The latest expansion follows the GSEs’ April rollout of VantageScore 4.0 to a limited number of lenders, an approach intended to allow Fannie Mae and Freddie Mac to test operational readiness before making the model broadly available.
Pulte said approximately 50 lenders were delivering loans using VantageScore before he ordered the program opened to all approved lenders.
The Trump administration has framed the changes as part of an effort to reduce homebuying costs and encourage greater competition in mortgage credit scoring. The Credit Score Competition Act, signed into law in 2018, directed federal housing regulators to establish a process for considering alternative credit-scoring models for use by Fannie Mae and Freddie Mac.
