The Trump administration announced Wednesday that the Federal Housing Administration (FHA) and mortgage giants Fannie Mae and Freddie Mac will be adopting new credit score models for mortgages for the first time “in decades”, as the president attempts to stimulate a stalled housing market.
The change, which was described as a “historic move” by the U.S. Department of Housing and Urban Development (HUD), is intended to lower housing costs for Americans “after years of rising prices under the status quo credit score system.”
How the Change Will Work
The FHA provides mortgage insurance on single-family, multifamily, manufactured home, and hospital loans, making homeownership more accessible for first-time buyers and those with lower credit scores or limited down payments.
Under the changes announced by HUD Secretary Scott Turner, the agency will now permit the use of VantageScore 4.0 and FICO 10T as eligible credit scoring models for FHA-insured mortgage underwriting.
Both VantageScore 4.0 and FICO 10T are modern, highly predictive credit score models using machine learning, trending data, and so-called alternative data to more accurately assess creditworthiness.
VantageScore takes into account rental and utility payment history reported to Equifax, Experian, or TransUnion. Similarly, FICO 10T considers rental payment history reported to these same agencies.
This allows the models to assess the creditworthiness of aspiring homebuyers who are often overlooked by more traditional credit score systems.
Fannie Mae and Freddie Mac will do the same, updating their selling guides with the new scores and “immediately” accepting Vantage-scored loans from approved lenders, the HUD wrote.
Pilot Scheme Set to Launch
Federal Housing Finance Administration (FHFA) Director Bill Pulte said that the two mortgage giants are launching a pilot program that will allow the use of VantageScore 4.0 exclusively for loans delivered to them, as well as the future use of FICO 10T and a new pricing grid reflecting the new models.
According to Fannie Mae and Freddie Mac, these changes will be implemented “through a limited rollout to approved lenders to help ensure operational readiness before broader availability as the market moves forward with full implementation of modernized credit scoring and credit reporting.”
What Does This Mean for Homebuyers?
Using the new credit score models will make it easier for would-be homebuyers with a history of timely payments for rent and utilities to qualify for a mortgage.
“If you pay your rent on time, you are more likely to pay your mortgage on time,” Pulte said during a press conference on Wednesday. “For decades, our housing system ignored that simple fact, because your credit score would never count it. That’s nonsense, because credit history should include rental history.”
Talking to Fox News on Wednesday, Turner described the changes as part of the Trump administration’s agenda to make homeownership more affordable for Americans, especially young people.
“Now we are increasing competition, we are increasing innovativeness. This is for creditworthy, trustworthy people,” he said. “We are taking bold steps to open up the credit market for creditworthy people—for Gen Z, millennial first-time homebuyers.”
More Data, Better Decisions
According to Fannie Mae, the new credit score systems will help foster competition and innovation in the U.S., potentially lowering lending costs.
Newer credit score models such as VantageScore 4.0 and FICO 10T incorporate additional data that can provide a “more complete view of borrower creditworthiness,” the mortgage giant said, including on‑time rent payment history and trended credit data. This information should allow lenders to score consumers more accurately.
“Credit score model modernization is an important step toward a more competitive, innovative, and resilient housing finance system,” said Jake Williamson, executive vice president and head of single-family at Fannie Mae, in a statement.
“By incorporating newer models with more predictive power, we can support sustainable access to homeownership and keep safety, soundness, and operational readiness at the center.”
Related Articles
