FHFA Approves Use of Alternative Credit Scores for Fannie Mae, Freddie Mac Mortgages

The federal government says lenders can use borrowers’ FICO 10T and VantageScore 4.0 credit scores when approving mortgage loans.

By , Attorney

On October 24, 2022, the Federal Housing Finance Agency (FHFA) announced that it would eventually require lenders to deliver both FICO 10T and VantageScore 4.0 credit scores with each loan sold to Fannie Mae and Freddie Mac. (The FHFA is the government agency that oversees Fannie Mae and Freddie Mac.)

For around 20 years, Fannie Mae and Freddie Mac required lenders to use the "Classic FICO" credit score to evaluate borrowers' credit. But FICO 10T and VantageScore 4.0 consider different types of payment histories for borrowers than Classic FICO. For instance, when available, they include rent, utilities, and telecom payments.

FHFA also announced that it's working to change the requirement that lenders get credit reports from all three nationwide consumer reporting bureaus (Equifax, Experian, and TransUnion) when someone applies for a mortgage loan. Instead, lenders will have to get credit reports from two of the three bureaus.

How Fannie Mae and Freddie Mac Work

Fannie Mae and Freddie Mac are government-sponsored entities (GSEs) that own or guarantee many, around half, of the mortgage loans in the United States. While the GSEs don't make mortgage loans, lenders must meet their guidelines if they want to sell their loans to Fannie Mae or Freddie Mac.

Conventional loans that adhere to these guidelines are called "conforming loans." When making conforming loans, lenders look at an applicant's credit scores.

What Is a Credit Score?

Credit scoring companies calculate credit scores using an algorithm or mathematical model. Scores are based on the information in a person's credit report from a credit reporting bureau, like Equifax, Experian, or TransUnion.

FICO Credit Scores

FICO is the dominant credit-scoring company in consumer lending transactions. FICO has many different scoring models. So, a person's score will likely vary depending on the model used to produce it, like FICO 8 or FICO 9, and the credit reporting agency that provided the underlying credit report. FICO scores generally range from 300 to 850.

FICO also offers industry-specific variations of its scoring models, like for the auto, credit card, and mortgage-lending industries. For many years, Fannie Mae and Freddie Mac have required lenders to use the Classic FICO credit score to measure credit when people apply for conforming mortgage loans.

One type of FICO credit score, called "FICO 10T," takes into account trended data, like whether a consumer's debt levels are rising and credit management patterns and treats missed payments more harshly than other scoring models.

VantageScore Credit Scores

Another credit scoring company is VantageScore. Equifax, Experian, and TransUnion introduced VantageScore as a joint venture in 2006 to compete with FICO.

VantageScore also has different scoring models, like the 3.0 and 4.0 models. VantageScore used to have a different score range than FICO, but now it uses the 300 to 850 range.

Which Credit Score Is Used for Mortgages?

Again, in the past, Classic FICO has been used extensively to produce credit scores for conforming loan eligibility. Now, FHFA says lenders will have to include both FICO 10T and VantageScore 4.0 credit scores for loans to be eligible for sale to Fannie Mae and Freddie Mac.

What Makes FICO 10T and VantageScore 4.0 Different From Classic FICO?

Both FICO 10T and VantageScore 4.0 include new payment history information such as rent, utilities, and telecom payments when available. So, the FHFA believes using these more recent, innovative scoring models will improve accuracy when it comes to evaluating a person's creditworthiness.

Because both FICO 10T and VantageScore 4.0 are more accurate than Classic FICO, the mortgage market will get a better risk assessment by looking at scores from these models. The FHFA also thinks using these models will strengthen borrowers' access to credit.

The theory is that using these scoring models will benefit borrowers, lenders, and the GSEs.

When Does This Credit Scoring Change Go Into Effect?

After a multiyear transition period, lenders must deliver loans to Fannie Mae and Freddie Mac with both FICO 10T and VantageScore 4.0 scores when available.

Other Changes to GSE Policies

Fannie Mae and Freddie Mac are also ending a practice that required lenders to get reports from all three consumer reporting bureaus when evaluating mortgage applications. Now, the GSEs will require two credit reports.

Learn More About Fannie Mae and Freddie Mac

To learn more about Fannie Mae and how it works, go to the Fannie Mae website. For information about Freddie Mac, go to the Freddie Mac website.

Read this factsheet to get details about the transition to using FICO 10T and VantageScore 4.0 credit scores in conforming mortgage transactions.

Effective date: October 24, 2022