The Federal Housing Finance Agency's
"They're going to have two years to do this, it's not like they were given a week," said John Ulzheimer, a professional witness who previously worked in the credit reporting and scoring industry. "It's a matter of prioritizing programming and risk management resources."
Industry executives coming off a tough year are wondering what the transition will cost and how many borrowers it'll bring in.
That said, it's a bigger deal for the mortgage industry than others to shift to FICO 10T and VantageScore 4.0, those outside of it acknowledge.
"It's a pretty considerable change," Ulzheimer said. "The entire industry is going to catch up on basically two decades of technology when they flip the switch."
The move to advanced scores is more complex for the FHFA because it is less a lender-by-lender decision but involves a large player that serves as a central hub for many stakeholders, said Joanne Gaskin, vice president of scores and data analytics at FICO.
"There's a difference in how the mortgage industry is interconnected, versus the credit card lenders, where there's one party that has to make the decision," she said. "With mortgage lending, you've got the originator, GSEs, investors, and maybe there's a broker, rating agency or private mortgage insurer. It's just much more complex."
But this isn't the first time the mortgage industry has had to deal with a change in the broader credit reporting system and some of that past experience is somewhat heartening because it boosted leads for home loans.
The Consumer Financial Protection Bureau found
With the change estimated to remove one medical collections tradeline from 22.8 million people and remove all such records for 15.6 million, it appears it likely has or is creating a group of more mortgage-ready customers in cases where that's enough to raise their scores sufficiently.
That suggests VantageScore's claims that it could bring in at least 10 million mortgage customers in line with FHFA use of the model and FICO's estimate for a 5% increase also could materialize, depending on the execution.
Granted the medical collections change was much different than the larger transition underway at the FHFA, the former being a largely a matter for the credit bureaus rather than the mortgage industry, for one. And mortgage professionals interviewed for this article had mixed opinions about whether it made a difference as far as borrower interest.
But it does show how moving some ad-hoc practices used in mortgage underwriting into credit reporting and scoring can be a natural progression.
While the medical reporting removal does have its skeptics who think its longtime inclusion in reporting and scoring may mean it has been predictive of credit concerns, some mortgage lenders say they had some comfort with it because there have been some exceptions for it in underwriting.
"The Federal Housing Administration in particular and conforming markets as well have stated some conditions where medical collections don't apply in their credit risk factoring," said Dustin Martin, a mortgage underwriting training manager at Embrace Home Loans.
Fannie Mae, the larger of the two major government-sponsored enterprises buying U.S. mortgages and one the FHFA's charges, has used the kind of trended data and
That could give the industry some comfort in the FHFA transition. Those two types of data primarily distinguish the advanced credit scores the FHFA will be adopting and other consumer finance industries like credit cards have been using them to good effect, Gaskin said.
"We know that rental data, assuming the consumer is paying as agreed, can be a real positive," Gaskin said, noting that the same is true for trended data, which involves tracking the payment histories in credit accounts over time rather than based on snapshots of activity.
Updating the scores is much more powerful than just using certain new data elements within them separately in underwriting, said Rikard Bandebo, chief product officer at VantageScore.
"The first thing [lenders] check is a person's credit score, then they go through the underwriting process. So if all these people that have rental data, but it wasn't included in the credit score yet, they can't get past whatever the threshold is. Let's say it's a 620 and they had a 605. They can't get past the point, right? That's why so many millions of consumers are being excluded today from this system," he said.
There are generally certain trends seen when credit measures get updated in consumer finance, according to Ulzheimer. While mortgages usually have a higher payment priority than other loan types that could cause them to differ, they're likely to follow the same pattern.
"Normally, the way it works, when you compare score distributions from newer versions relative to older versions is there's this flattening of the curve, where you have more people scoring in the tails and fewer people scoring in the meaty part," said Ulzheimer.
