Pulte's tweet hands credit bureau an unfair edge

Bill Pulte, director of the Federal Housing Finance Agency (FHFA) recently roiled the mortgage market with a post on X, writing "Fannie [Mae] and Freddie [Mac] will ALLOW lenders to use Vantage 4.0 Score with no current requirement to build new infrastructure (stays Tri Merge)." Not only is it highly unorthodox to be making huge policy decisions via social media, but Pulte's announcement upended a decade of thoughtful work by the FHFA and the entities that it regulates.

Pulte's action will shift control of credit scoring, something we all need in order to be able to access lending and the modern financial system, from FICO to VantageScore, which is owned by the big three credit bureaus (Equifax, Experian, Trans Union). While FICO certainly isn't perfect, driving it out of the market would make the anti-competitive nature of the credit scoring market even worse, hurting homebuyers and homeowners.  The end result would be a vertically integrated monopoly of the Big Three private credit companies and VantageScore. That will not lead to more accountability or a better credit system.  

READ MORE: Fannie, Freddie add VantageScore, keep tri-merge

To understand what's going on, we need to go back to 2018, when Congress passed the Credit Score Competition Act, which set out the requirement and process for FHFA to update the scoring models used by Fannie Mae and Freddie Mac. FHFA issued regulations to implement that law, did extensive research and testing, and engaged in multiple rounds of public process. In October 2022, FHFA decided to require lenders to use both FICO 10-T and VantageScore 4.0.  

Without any public process or additional research, Pulte's action overturns years of work. Even worse, Pulte's decision allows VantageScore to use its latest, most advanced scoring model (version 4.0) to compete against Classic FICO, a 20-year-old score. If he truly wanted to promote fair competition, FHFA would have allowed the use of FICO 10-T, the newest scoring model. Pulte is making FICO compete with one hand tied behind its back. 

READ MORE: FICO challenges FHFA's VantageScore decision

Pulte's decision also abets price manipulation. The Big Three could set the pricing for the credit scoring package for VantageScore at a fraction of that of FICO – giving lenders a huge financial incentive to choose VantageScore. Currently, the price of a credit scoring package is about $100-$120, of which FICO receives a fraction, about $15 according to FICO.  The Big Three could theoretically alter their pricing so that a credit score package is $75 if the lender chooses VantageScore, but $200 if the lender chooses FICO.  Once FICO is out of the picture, the Big Three will be free to hike prices back up or go even higher.

Allowing the same three companies to control both credit scoring and credit reporting removes one significant check on manipulation or distortion of consumer data.  The credit bureaus don't compete with each other when it comes to mortgages, because Fannie Mae and Freddie Mac require a credit report from all three to underwrite a mortgage, called a "tri-merge" report. FHFA had been planning to allow the use of just two credit reports, but Pulte's post unfortunately indicates that the tri-merge report requirement is staying in place for now.

READ MORE: FHFA's Vantagescore move changes math on mortgage insurance

Supporters of VantageScore have argued that its scoring is more inclusive, touting the fact that it includes alternative data such as rent and utilities. But FICO 10-T includes alternative data as well.

It's worth noting that a whopping 2.5 million complaints were filed against the Big Three credit bureaus in 2024 with the Consumer Financial Protection Bureau, making it the largest source of complaints in the financial services sector by far.

Pulte's decision gives more market power to the Big Three and increases costs and consequences for everyday people.