Credit score modernization overseen by Federal Housing Finance Agency Director Bill Pulte has taken time to implement and the next tier of lenders considering it may need more, but there is one step they can immediately take.
The whole loan market is already beginning to respond as government-sponsored enterprises that buy many mortgages made in the United States roll the modernized VantageScore 4.0 out to the broader market after
Whole loan sellers or their vendors can add a field for VantageScore 4.0 relatively quickly and it will help ensure they will have access to the full breadth of future opportunities in the market, said David Battany, executive vice president of capital markets at Guild Mortgage
"If you are a whole loan buyer or seller, you should absolutely add the extra field of this data," he said. "There's no guarantee that you immediately get a bid up because of it, but there may be a day when that becomes the case. That's why you should add it."
Vice Capital Markets, which runs a whole loan trading platform, announced that it has already added support for VS4 by including a data field for its system in bid tape information amid a flurry of FHFA and GSE policy announcements around credit modernization.
"Most investors are still in the process of getting ready to accept Vantage 4.0 scores and use them in bid tapes, but I expect that to happen very quickly," said Chris Bennett, chairman of Vice Capital Markets.
Bennett said he has already seen some investor interest as large lenders from the pilot have begun funding a small but growing number of loans.
"It's not everybody, but we have a couple servicing buyers on a co-issue basis that have started accepting it, and we're expecting that very soon we're going to see widespread adoption, or at least the ability to do it by most of the tier one investor community," he said.
Progress at the GSEs and FHA
The GSEs' current grid for VantageScore 4.0 requires that metric to be 20 points higher than the equivalent classic FICO that the enterprises have traditionally relied on to get the same loan price pegged to the average difference between them.
Differences between the two metrics include the fact that classic FICO requires at least half a year of traditional credit history to initially score a borrower as opposed to as little as one month.
VS4 also incorporates newer types of payment reporting, such as rent and trended data.
Views on how the two score types should factor into GSE loan-level price adjustments may shift over time. The more advanced FICO 10T model is seen as increasingly competitive with VantageScore 4.0, and its pending review at the enterprises could further reshape market dynamics.
The Federal Housing Administration, which jointly announced somewhat similar credit modernization as FHFA in April, said it will officially begin a 10T rollout next year, officially adding it to the Technology Open to Approved Lenders scorecard on or after Jan. 1.
The structures of FHA and the enterprises that FHFA oversees differ, so there has been some divergence in their credit score modernization paths.
Enterprise loan-level disclosure files reported at the end of each month show the GSE have slowly increased VS4 activity since April, when the test was first announced, according to a recent analysis done by equity researchers at Keefe, Bruyette & Woods
Those sales accounted for 5.56% of new-issue GSE loans in August, KBW's Bose George, Frankie Labetti and Graham Bundy, wrote in the report. Most or 69.4% of that VS4 volume came from Rocket Mortgage. Another 28.7% came from United Wholesale Mortgage.
Other lender considerations
While adding a field to bid tapes does require some data mapping, it is relatively easy compared to other steps the next tier of lenders may be considering when it comes to VS4.
"The adoption is happening slowly because it's not that hard for us to amend our processes, bid tapes and coordinate with investors to be able to include this. It's a much bigger deal as an originator," Bennett said.
All this means midsize and smaller lenders who have fewer resources may need more time to adopt VS4 and be watching for implementation in industry origination systems.
At least one, Calyx, has an interface with credit reporting and data solutions provider Advantage Partner Solutions to this end.
Informative Research, another credit reporting and data solutions provider, also has been working with lenders to accommodate alternative credit scores in response to client interest, according to President Matt Orlando.
"Lenders believe there may be real value in VS4, both in lowering the cost of credit and in qualifying more borrowers under better terms, similar to the opportunity with FICO 10T," he said in an email.
Given recent unexpected runups in interest rates, lenders are more interested in qualifying more borrowers, although external scores play more of a role in pricing than eligibility at the GSEs.
However, the GSEs announced Friday that they are releasing historic credit assessment data previously only used in connection with their own automated underwriting system scores for the period between April 2013 and September 2025.
"Releasing enterprise internal scores alongside classic FICO and VS4 may prove to be Director Pulte's most impactful announcement to date," Sam Valverde, a former acting president of Ginnie Mae and vice president at Freddie Mac, said in an email.
"Once we understand how GSE scores compare to each other and to the existing methodologies, lenders, MBS investors, and borrowers will benefit," he added.
Analyzing that date and gearing up servicing as well as origination system will be a deliberate process, experts interviewed for this article said.
And while whole loan sellers should be able to get a field readied quickly, there is some work involved even with vendor readiness, and they may have to wait for other steps.
"You have to do the data mapping on it, and you have to know which of your investors is going to accept it, which ones won't, and what are the rules they're going to be?" Bennett said.
Investors and sellers will need to consider risk management in questions about whether and how to go beyond readying their bid tapes for VS4 and actually engaging in transactions.
"As a lender, it's not just, 'Can I sell this?' It's, 'what's the credit risk to me as the lender,'" Bennett said. "If this goes bad, this loan might be coming right back to me. I've got to make sure that as a lender, I'm comfortable with this methodology and I'm comfortable originating loans using VantageScore 4.0."
Competition and cost updates
Another potential incentive for lenders to weigh against possible risks is that Pulte has been positioning credit score modernization as a way to spur competition that could put pressure on FICO to do more to lower prices in ways that could ease homebuying costs.
FICO and VantageScore have offered some selective discounts as a result of this pressure, but Pulte has shown some frustration with the lack of broader price breaks for the classic metric.
VantageScore is backed by the three bureaus that provide credit reports, which complicates the question of competition, but it is far less expensive than the more independent FICO's classic model. FICO has been willing to provide more competitive pricing for 10T.
Lenders have had to pick one score to submit to the enterprises
"If you've got co borrowers you have to use the same score for both. You can't use Classic FICO for one borrower and VantageScore 4.0 for the other. You have to use the same methodology," Bennett said.
Another aspect of credit assessment that
"If we could use competition to force the big three to improve the quality and the completeness of their data, then that would be a huge deal," said Chris Whalen, an
Pultes's new push to this end has revived past concerns about whether there are other concerns in the move to make loan decisions from fewer bureaus, which may limit available information in a way investors may respond poorly to and lead to gaming.
To address such concerns, "one option is for FHFA to randomly assign a bureau or use another blind, rules-based rotation," Ed Pinto and Tobias Peter, co-directors of the AEI's housing center wrote in
What to watch for next
Going forward, the market will be watching whether a growing number of new data sets can ease investor concerns about VantageScore 4.0 and FICO 10T. Some investors have been hesitant to accept loans scored with these models because the underlying data doesn't extend back to the 2008 financial crisis, leaving less historical evidence of how the scores perform in a downturn.
Rating agencies that assess the GSEs' CRTs and private-label MBS outside the enterprise's market have begun to weigh in on VS4's growing use, and may be influenced by its inclusion in some of the enterprises' new mortgage-backed securities and credit risk transfer disclosures.
The enterprises' MBS aren't rated because they have implicit government backing, making investors more concerned about prepayment than credit risk. So VS4 CRT data disclosures may be the more influential ones where rating agencies are concerned.
As far as where Pulte sees this all leading, he indicated in a recent social media post that he is envisioning a future where "the evolution of technology will lead to no credit score companies and I believe there will only be one credit bureau."
