Federal Home Loan Bank of San Francisco adds Vantagescore

The Federal Home Loan Bank of San Francisco has begun accepting mortgages underwritten using Vantagescore 4.0, one of the advanced credit metrics that other government-related entities are also on track to adopt.

The move announced Monday could help broaden the credit box and contribute to housing initatives for racial equity, according to Teresa Bryce Bazemore, who is currently president and CEO of the San Francisco Home Loan bank. Bazemore will be retiring later this year.

"This was significant in terms of trying to move forward on having more people have the ability to borrow," said Bazemore, who said it brings to fruition an effort that's been in the works since it became clear a couple of years ago that the score held the potential to expand home lending.

Of a total 33 million people nationwide who can't establish a credit metric using traditional models, Bazemore estimates there are 5.5 million in the San Francisco district who'd be scoreable using the newer measure, which considers payments like rent and other data outside of typical debt histories.

A smaller subset of those 33 million, equating to $1 trillion in originations, would have scores of 620 or higher and would be in the 25 to 65 age range that makes them likely candidates for mortgages, according to a Vantagescore study released last year.

Vantagescore didn't immediately have a measure of how many mortgage-ready people in the San Francisco district that could equate to but Tony Hutchinson, senior vice president of industry and government relations, was optimistic the initiative could generally broaden lending.

"We think this is going to be the impetus for a lot of people that have been on the fence," Hutchinson said, referring to home lenders who may be considering adopting the score before major government-related mortgage investors fully implement it down the road.

At least one member of the San Francisco Home Loan bank, Patelco Credit Union, has signaled that it has used the more modernized score for other types of consumer finance, where the credit metric has more of a foothold, and is planning to extend that use to home lending.

"We look forward to adding Vantagescore 4.0 for mortgages in the future," said Richard Wada, chief lending officer at Patelco, in a press release.

Bazemore said the San Francisco Home Loan bank would consider using FICO's advanced model too. 

In adopting either of the two advanced scores, lenders face the high cost of additional models at a time when the existing one is said to be going through a price hike. They've also voiced concern about the metrics' lack of a mortgage track record.  

Unlike government-sponsored enterprises Fannie Mae and Freddie Mac's initiative, the San Francisco Home Loan bank move is not legislatively mandated. It allows mortgages with only Vantagescore to be used for collateral, limiting the credit reporting cost, Bazemore said.

District officials have studied the score carefully the last couple of years and run blind tests that the provider of the credit metric provided data for but did not see the results of, according to Hutchinson and Bazemore, with the latter noting that it has fared well in that analysis.

Given the aforementioned mortgage lender concerns about using the advanced credit scores, one recommendation Hutchinson has is to use them in conjunction with Special Purpose Credit Programs, which typically are limited in their application to a targeted geographic area 

"One of the things that we think many lenders or mortgage originators should do, especially if they don't want to put a whole lot of money into it up front, is to test this on a small portfolio so they can get some practical knowledge without having to really go full bore into it," he said.