Despite an industry back-and-forth over credit pull costs, FHFA's decision has been greeted as a positive step
Affordability struggles and mounting home prices have locked scores of potential homebuyers in the US rental market in recent years – but a move paving the way for rental payments to factor into credit scores has been described as a positive step for first-time buyer prospects.
Fannie Mae and Freddie Mac will begin accepting the VantageScore 4.0 credit scoring model, which incorporates rent and utility payments into its calculation, for mortgage underwriting alongside traditional FICO credit scores.
Proponents say that change – currently in an interim phase – could help young adults and renters qualify for a mortgage when they might have been excluded under FICO-only models, which don’t factor in rental payments.
Texas mortgage broker Trey Bolen (pictured top) of Lendid Home Loans told Mortgage Professional America the decision, announced by Federal Housing Finance Agency (FHFA) director Bill Pulte last week, was the right one.
“It’s definitely a positive move,” he said. “Obviously for most first-time homebuyers, the primary expense per month is going to be the rental payment, and I don’t see why that’s not a very strong indicator of creditworthiness – just like any other debt that gets reported on credit. It definitely should be factored in.”
Move arrives amid growing dissent over rising credit pull costs
Supporters of the move by the government-sponsored enterprises (GSEs) to accept its credit scoring model also argue that it will increase competition and potentially bring prices lower, with the skyrocketing costs associated with credit pulls drawing constant criticism from the mortgage industry in recent years.
In May, Pulte said he “still [wasn’t] happy” with FICO in response to an X user who shared a graphic claiming credit pull costs had spiked by up to 700% by 2024, jumping from an average of $14.50 to potentially more than $100 for two-person reports.
First-time buyers are rarely irritated about credit pull costs recouped at closing by the mortgage company, Bolen said, partly because they usually have little awareness of how prices have risen in recent years and also because those aren’t their most significant closing costs.
Skylar Welch, Founder and Managing Partner of Maine Pointe Lending, explains how current mortgage rates, alongside the impact of tariffs and economic anxieties on local businesses, are deterring market activity.https://t.co/FhunT5Fy7R
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But the recent increases have been keenly felt by mortgage professionals when their potential customer doesn’t end up using them for their mortgage, he added. “It’s primarily all the credit reports we have to pull for people that don’t close on a loan. That’s where it really adds up,” he said.
Affordability challenges continue to pile up in Texas
Assistance for first-time homebuyers would come as welcome relief in Bolen’s market of North Texas, where those buyers are facing big hurdles putting together a successful mortgage application.
That’s partly because of climbing property values and interest rates – but also because other costs associated with purchasing a home have risen alarmingly.
“Insurance costs have gone up. Property taxes are going up along with home values. So affordability is still a major issue,” Bolen said. “We’re doing far more temporary rate buydowns, permanent rate buydowns, things of that nature, to help with monthly payments.
“It’s also just coaching clients early on as far as what price range they need to be looking at to keep payments affordable and within their budget. It’s really a lot more about advising earlier on than it used to be.”
Last year, a Harvard University report indicated hopeful homebuyers have faced a sharp increase in the required annual income to afford a property in urban areas across Texas, particularly since before the beginning of the COVID-19 pandemic.
According to VantageScore, 21% of millennials have “thin files” which makes it more difficult to assess them by traditional means.
Josh Lewis, a certified mortgage consultant at BuyWise Mortgage, told MPA last week that VantageScore’s model could have a significant impact in improving the chances of getting a mortgage approved for those types of borrowers.
“Some clients who have no FICO score at all due to inactivity may still show a valid VantageScore,” he pointed out. “That can absolutely shift the approval path, whether through AUS eligibility or loan pricing tiers.”
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