Despite concerns from housing and mortgage industry trade groups, the Federal Housing Finance Agency (FHFA) on Thursday announced the release of VantageScore 4.0 historic credit data, a step that is designed to ease the transition to new credit reporting requirements by the end of next year.
The datasets released Wednesday are tied to single-family mortgages purchased by Fannie Mae and Freddie Mac from April 2013 through March 2023. The FHFA said in its announcement that it aims to “provide market participants the ability to better analyze and understand the new credit score models that have been validated and approved for use by the Enterprises.“
Earlier this year, the FHFA announced that it would transition away from exclusive use of the current tri-merge credit reporting system and allow lenders to use a bi-merge model by fourth-quarter 2025. At that time, Fannie and Freddie will purchase loans based on the FICO 10T and VantageScore 4.0 credit models while replacing the Classic FICO score system that has been in use for decades.
“The release of historical credit scores on tens of millions of loans provides an extensive resource to help market participants prepare for this transition,” FHFA Director Sandra Thompson said in a statement. “The use of these modernized credit score models will enhance risk management while furthering sustainable access to credit for consumers.”
VantageScore explained in its own announcement that the datasets include 25 million loan-level records for Fannie Mae and 20 million for Freddie Mac. There are an additional 38 million records for Fannie and 33 million for Freddie that are tied to mortgage-backed securities and credit risk transfer data. The company estimated that the data would help lenders qualify more than 2.5 million new eligible mortgage applicants and originate an additional $1 trillion in loans across the industry.
“This is an important and necessary step to modernize the outdated and exclusionary credit scores that lenders in the conventional-conforming mortgage market have been forced to use,“ Anthony Hutchinson, senior vice president of industry and government relations at VantageScore, said in a statement.
The shift to a bi-merge credit model will allow lenders to save money by not using consumer credit data from one of the three major bureaus: Equifax, Experian or TransUnion. And regulators believe the FICO 10T/VantageScore 4.0 system will be more effective in making mortgage credit available to borrowers who were previously denied.
“Outdated models in housing finance often exclude millions of creditworthy, underserved borrowers. VantageScore 4.0 scores an estimated incremental 33 million more people than traditional models, making it considerably more inclusive,“ VantageScore said in its announcement.
The shift has not come without concern or controversy. In May, several trade organizations — including the Mortgage Bankers Association, the American Bankers Association and the Housing Policy Council — sent a letter to the FHFA in which they stated that the historic dataset would be “insufficient“ for meeting their analytical needs.
“FHFA was comfortable approving VantageScore 4.0 for use by the GSEs based on limited historical data,” the letter read. “Many industry participants have raised concerns about this, given that the data was generated during a time when the housing market was appreciating, and unemployment was declining to historic lows. Our members continue to believe that it is imperative to have credit reporting data ‘through the cycle’ back to 2003 given the sensitivity of mortgage default and prepayment to origination credit scores.”
The move to the bi-merge model even caught the attention of federal lawmakers, with Rep. Scott Fitzgerald (R-Wisc.) introducing a bill in April to codify the tri-merge reporting model into law. TransUnion expressed support for the legislation, which has yet to make its way out of committee.
Credit reports have become more expensive this year after FICO announced that it would no longer offer the tier-based pricing structure it implemented in 2023. The company is now charging the same fee for hard and soft credit pulls. This raised eyebrows among lenders and originators, who said the increased costs would be passed to borrowers who are already facing affordability challenges.
The FHFA initially announced its intention to transition to the new credit reporting model in October 2022, with the implementation originally slated for first-quarter 2024. That timeline was pushed back following what the FHFA termed “extensive stakeholder engagement and input.“ This included a July 2023 letter from the Community Home Lenders of America in which the trade group expressed multiple concerns and urged the FHFA to slow down.
The VantageScore 4.0 datasets are available online through Fannie Mae and Freddie Mac.
