End of FICO as We Know It: Federal Housing Finance Agency Reveals Timelines
The Federal Housing Finance Agency (FHFA) has revealed its proposed timelines for Fannie Mae and Freddie Mac to stop using the FICO Classic credit model, and to transition to the FICO 10T and VantageScore 4.0 models.
By Q4 2025, the agency aims to have incorporated credit score model updates into capital and pricing, while a bi-merge system will replace the current tri-merge setup by Q1 2024. These changes are part of a broader effort to modernize the credit scoring system and make it more accurate and accessible for all borrowers, which is a positive step for the housing market as a whole.
The FHFA also plans to shift to two credit reports from three over the next 12 months.
The FHFA said the changes would help support accuracy, innovation and inclusion, while cutting costs and boosting innovation.
How may the changes impact home buyers and sellers?
The FHFA's announcement to sunset the FICO Classic credit model and transition to the FICO 10T and VantageScore 4.0 credit score models by Fannie Mae and Freddie Mac is a significant change that could impact home buyers and sellers in various ways.
One of the main benefits of the new models is that they will allow for greater accuracy in credit reporting.
The changes will take into account a wider range of payment histories, including:
rent, utilities, and telecom payments.
more people will be able to have their creditworthiness assessed.
including those who have little or no traditional credit history.
However, some stakeholders have expressed concern over FICO's pricing changes, as the new models may result in increased costs for some mortgage lenders.
According to a letter by the National Consumer Reporting Agency, mortgage lenders may see price increases of between 10% to 400% from Fair Isaac Corp. (FICO). While FICO has defended its pricing, stating that it remains "exceedingly low compared to the value that the FICO Score provides," it remains to be seen how the changes will impact mortgage lenders and ultimately, home buyers and sellers.
Despite potential pricing changes, the transition to the FICO 10T and VantageScore 4.0 models is expected to support innovation and inclusion in credit score models, which could help more people qualify for mortgages and improve their access to credit.