Under a new rule from the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac will be required to consider credit-score alternatives to Fair Isaac Corp.’s FICO score when determining a mortgage applicant’s creditworthiness.
The move is seen as a victory for VantageScore from VantageScore Solutions LLC, which is owned by the credit-reporting firms Equifax, TransUnion and Experian.
“One of my priorities is to ensure that the American people have a safe and sound path to sustainable homeownership, which requires tools to accurately measure risk,” says FHFA Director Mark Calabria.
As originally released last December, the new credit-score rule prohibited models developed by current credit-reporting firms. However, that restriction was removed and no longer in the final proposal issued on Aug. 13, which freed VantageScore to be used.
Many nonbank lenders have said the alternative credit score would open the mortgage market up to more borrowers, increase mortgage approvals, and thereby boost home sales and the economy.
VantageScore can assign scores to consumers who haven’t used credit in more than six months. However, FICO says the approach would lead to less predictive scores and riskier loans.
Source: Wall Street Journal (08/13/19) Ackerman, Andrew; Andriotis, AnnaMaria
© Copyright 2019 INFORMATION INC., Bethesda, MD (301) 215-4688