Bill Pulte also announced this week that nearly $10m in loans had already been done through the new scoring model
The ongoing battle surrounding both rising credit score costs and credit score competition took another step forward on Wednesday.
FHFA director Bill Pulte announced that not only would VantageScore 4.0 be accepted immediately by Fannie Mae and Freddie Mac, but that nearly $10 million in loans had already been done using the new scoring model owned by the three credit bureaus.
Pulte also noted that by accepting VantageScore 4.0, it would allow rent payments to count towards a borrower’s score. He also noted that he was hopeful that FICO 10T would match the VantageScore pricing of 99 cents per loan.
The hope in the mortgage industry is that competition can help drive down the costs of credit reporting. One executive is also hopeful that more borrowers will now be deemed creditworthy for a mortgage who might have been shut out under the old system.
Hector Amendola (pictured top), president of Panorama Mortgage Group, said the move should help lower the costs of doing a loan, which should make loans more affordable for first-time buyers.
“We’re always looking for how to improve pricing for our borrowers,” Amendola told Mortgage Professional America. “I’ve been focused on the cost to manufacture a loan and how it’s $12,000 to $13,000 per loan for the average lender right now. When credit prices go up, it’s okay when the loan closes, but it’s going up for all the people that we run credit for that don’t close.
“The next thing, of course, is first-time homebuyers and the fact that we keep seeing all this data come out about how they’re buying later on in life. I’m like, ‘I see that you pay your rent, and you seem really responsible.’ But unfortunately, the way we do mortgages, I can’t get you a mortgage. If we can get that modernization of what’s happening in credit reporting to a better place, I think that’s going to really help a lot of people, too.”
Implementation will take time
While Fannie Mae and Freddie Mac may be accepting VantageScore loans now, the local implementation for brokers and lenders is going to take some time.
“Like any business, change management is one of the hardest things,” Amendola said. “Because you need to get people on board with the idea that this is a completely different model. So we need to look at this differently. I already know that there’s going to be a little bit of an uphill climb with people going, ‘But we’ve always done it this way, so we’ll continue to do it this way.’”
Amendola said some lenders may have to bring in specialists just to work with the VantageScore loans, since they will be looked at slightly differently than the FICO ones that everyone is used to.
“It’s going to take some serious consideration for us to implement the change, and for us to get people in the right mindset to understand what the change is,” he said. “There might be something where we have to have specialists for VantageScore. And if you have a VantageScore, it goes to this underwriter, and it goes through this process, and it goes to these people, so that we can get them into the fold of how to do things and then kind of start figuring it out from there.”
For Amendola and his company, it’s important to figure out quickly how to get the process implemented so they aren’t at a competitive disadvantage. That’s why they had an emergency meeting after the news dropped on Wednesday.
“That’s what we talked about yesterday, as far as what the implementation is,” he said. “And how are we going to be able to get our underwriters, our processors, our loan officers, everybody thinking this way, because you've got to keep up with the Joneses. You have to make sure that you’re not left behind in the process of it.
“So that’s the heavy lifting that we still have ahead of us, but still exciting because I can see the end result is a special benefit for our customers.”
More reaction from the industry
Reaction from around the mortgage industry to Wednesday’s announcement was largely positive and hopeful.
The Mortgage Bankers Association (MBA) has been one of the most vocal critics of the rising costs of credit scores. Bob Broeksmit, president and CEO of the MBA, said the move would allow for more competition in the credit market.
“MBA has long advocated for greater competition in the credit reporting and scoring space,” Broeksmit said. “(This) announcement marks an important next step in modernizing the credit scoring framework used by Fannie Mae and Freddie Mac (the GSEs) and the Federal Housing Administration (FHA).
“MBA will also continue to press for reforms of the tri-merge credit reporting requirement, including implementing a single-score requirement for GSE borrowers with strong credit profiles, to encourage greater competition and lower costs for consumers.”
Scott Olson, executive director of the Community Home Lenders of America (CHLA), praised the move as a step in the right direction.
"CHLA Commends FHFA Director Pulte and HUD Secretary Turner for their announcement that they would begin accepting VantageScore 4.0 now and FICO 10T later as eligible credit scoring models on GSE and FHA loans," Olson said. "This is a very good first step – and CHLA continues to call for longer-term actions to create more competition, like Fannie and Freddie developing their own credit score capabilities."
TransUnion, which, along with Experian and Equifax, owns VantageScore, also praised the move. Satyan Merchant, senior vice president and mortgage business leader at TransUnion, said it would increase opportunities to create more homebuyers.
“We commend FHFA and HUD for their leadership, and we stand ready to help lenders and investors adopt VantageScore 4.0,” Merchant said. “This milestone supports a more competitive and innovative credit scoring ecosystem, preserves prudent risk management, and expands opportunities for creditworthy borrowers to achieve homeownership.”
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