- Fannie Mae and Freddie Mac have expanded mortgage lenders’ ability to use VantageScore 4.0 instead of relying exclusively on the traditional FICO model.
Fannie Mae and Freddie Mac are changing how credit scores can be used in conventional mortgage lending, opening the door for eligible lenders to assess borrowers with VantageScore 4.0 alongside the traditional Classic FICO model. The move could change how some homebuyers qualify for loans and how lenders evaluate credit risk, although it does not guarantee mortgage approval or lower borrowing costs.
The Federal Housing Finance Agency’s latest credit-score guidance, updated October 2, confirms that all lenders approved by the two government-sponsored enterprises can now use VantageScore 4.0 for eligible loans. The policy shift follows years of work to modernize mortgage credit scoring and introduce competition into a system long dominated by FICO.
The change comes as affordability remains a major concern for prospective homebuyers. Borrowers already face pressure from elevated home prices and mortgage payments, making credit eligibility and loan pricing important parts of the purchase decision. Those weighing the timing of a home purchase should also consider the latest mortgage-rate trends and the effect of borrowing costs on monthly payments.
VantageScore 4.0 Opens a New Route for Mortgage Credit Assessment
The policy change allows Fannie Mae and Freddie Mac to accept eligible mortgages evaluated using VantageScore 4.0, a credit-scoring model developed by VantageScore Solutions, a joint venture involving Equifax, Experian and TransUnion.
The Federal Housing Finance Agency, which oversees the two mortgage-finance companies, expanded access to the model on September 9, removing the requirement for lenders to obtain prior written approval. Lenders can choose between VantageScore 4.0 and Classic FICO for eligible loans sold to the enterprises, subject to their underwriting requirements.
The new model can incorporate additional information, including rent-payment history and trends in a consumer’s credit behavior. That may provide a broader picture of repayment patterns for some borrowers, particularly those whose traditional credit files do not fully reflect their financial history. It does not mean every borrower will receive a higher score or become eligible for a mortgage.
In an October 12 report, The Wall Street Journal said the move is part of a wider effort to challenge FICO’s longstanding dominance of mortgage credit scoring. The Journal’s reporting on the shift also highlighted concerns from some market participants about how alternative scoring models could affect mortgage underwriting and risk.
Fannie Mae and Freddie Mac have not eliminated Classic FICO. It remains an approved model, and lenders can continue using it under existing rules. The enterprises have also approved FICO Score 10T for future use, but it is not yet eligible for delivery on mortgages sold to them.
The transition also does not immediately change credit-report requirements. The FHFA said lenders must continue following the current reporting framework, including the applicable requirements for reports drawn from the three major credit bureaus.
For borrowers, the practical effect will depend on the lender, the selected scoring model and the rest of the mortgage application. Income, existing debts, down payment, loan type and other underwriting factors will continue to matter. A different score alone does not ensure that a lender will approve a loan.
Unified Pricing Rules Could Change Mortgage Costs
A second development came on September 30, when Fannie Mae and Freddie Mac aligned their upfront loan-level pricing adjustments for Classic FICO and VantageScore 4.0. The adjustments can affect the fees associated with a mortgage and are based on factors that include credit risk and loan characteristics.
The change followed a September announcement by FHFA Director Bill Pulte that the enterprises would use a single pricing grid for loans scored under either model. The goal is to avoid giving one approved scoring model a different pricing framework from the other.
That does not mean mortgage rates will automatically fall. A borrower’s final rate and costs still depend on lender pricing, creditworthiness, loan-to-value ratio, loan type, market conditions and other factors. Competition between scoring models could put pressure on some costs, but the size and distribution of any savings remain uncertain.
The shift also raises questions about how the models compare. Different scoring systems can assign different scores to the same borrower because they weigh credit information differently. Lenders must therefore follow the enterprises’ rules when selecting a model for a loan, and the same scoring model must be used for all borrowers on a given mortgage.
Fannie Mae’s credit-score modernization guidance explains the current requirements for lenders using VantageScore 4.0, including its availability for eligible loans processed through the company’s automated underwriting system. Manually underwritten loans must continue using Classic FICO under the current rules.
The reforms are part of a broader effort to improve competition and modernize the mortgage system while preserving safeguards against excessive credit risk. The FHFA has said it will continue to assess the performance of the scoring models as implementation progresses.
For homebuyers, the immediate takeaway is to ask a lender which credit-score model it uses for eligible conventional mortgages and whether an alternative model is available for the application. Borrowers should still review their credit reports, make payments on time, reduce outstanding balances where possible and compare mortgage offers from multiple lenders.
The new framework gives lenders more flexibility, but it does not remove the financial requirements of homeownership. Its longer-term impact will depend on how widely lenders adopt VantageScore 4.0, how the models perform and whether competition leads to meaningful changes in mortgage costs.