Mortgage industry expands use of alternative credit scoring models

The mortgage industry is transitioning toward modernized credit-scoring models. Fannie Mae and Freddie Mac have expanded the availability of VantageScore 4.0 to all approved lenders, removing the previous requirement for prior written approval. Under current policies from the Federal Housing Finance Agency (FHFA), lenders may use either VantageScore 4.0 or Classic FICO scores for eligible loans.

These newer models, which also include FICO Score 10T, differ from traditional methods by incorporating alternative data points such as rental and utility payment histories. This shift aims to provide a more comprehensive view of creditworthiness, potentially benefiting homebuyers with limited credit histories.

Further developments are expected, as the Federal Housing Administration has announced plans to authorize mortgages underwritten using VantageScore 4.0 and FICO 10T starting January 1. Additionally, the FHFA is considering modifications to lending procedures, such as reducing the number of required credit reports to lower costs for applicants.