NASHVILLE, Tenn.—FICO’s hold on the mortgage market is loosening. The Federal Housing Finance Agency said it will now require lenders that use credit scores for mortgage underwriting to use scores from both Fair Isaac Corp., the creator of FICO credit scores, and its competitor VantageScore Solutions LLC.
“Until now, mortgage lenders had to gauge most borrowers using only FICO scores if they wanted to sell a loan to Fannie Mae or Freddie Mac,” reported the Wall Street Journal. “That requirement helped cement FICO’s dominant position as the go-to credit score for lenders for a variety of loans. Since lenders had to use FICO scores for many mortgages, they also made them the favored third-party credit score when underwriting car loans, credit cards and other consumer loans.”
According to the report, FHFA, Fannie Mae and Freddie Mac began a review of whether to change credit score requirements in 2014.
Consumer advocates, VantageScore and some mortgage lenders had pushed for the change, saying it would allow more people to get approved for mortgages, the Journal added.
The FHFA said in a statement that it expects the change “will be a multiyear effort.”
Incorporates Additional Info
In a statement, FHFA Director Sandra Thompson said an older version of the FICO score that had been required will be replaced by a more recent FICO score, called the 10 T, and VantageScore’s latest credit score, referred to as VantageScore 4.0.
“The scores incorporate information about borrowers’ rent payments, utilities bills and phone bills when those accounts are added on credit reports, rather than just information about bank loans and other financing that scores have historically reflected,” the FHFA said, adding it expects the moves to increase approvals for people with a limited history of borrowing.
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