Credit ratings are not the problem

Bill Pulte, director of the Federal Housing Finance Agency (FHFA), announced on July 8, 2025 that Fannie Mae and Freddie Mac would accept Varotagescore 4.0 Credit scores for mortgage subscription. This decision was communicated via Pulte’s social media account on X and was effective “immediately”.

Most of the mortgage industry, including FHFA and GSE staff, was taken by surprise after Pulte’s announcement. Even if compliant mortgage lenders were ready to adopt Vantagescore 4.0 tomorrow, as Brad Finkelstein reported Last week, infrastructure and political alignment are still lacking to make loans.

Find out more: VOLTAGESCORE MOVE DE FHFA changes mathematics on mortgage insurance

The road to the implementation could be longer and more jumped than it seems, especially since the director Pulte made his announcement on Varotagescore 4.0 without being disturbed details. The same goes for the use of Fico 10T in the loan. Classic Fico is the basis of mortgage credit and is used by the vast majority of lenders, but no one really uses Fico 10T at present.

In May 2023, we described the chaotic process started by the predecessor of Pulte, Sandra Thompson, (“FHFA should also unravel its credit scoring plan“) To demand that lenders use two credit scores in the loan process, something that is arithmestically impossible and operational in terms of operational.

The effort of progressive policy of the Biden administration to push Varoutagescore concerned more press releases than the substance. He failed miserably. These were the obstacles to the implementation that the two -score regime was never close to being adopted. Now, the Trump administration – or at least the director Pulte – wants to review the question of the progressive reform of credit dimensions. But isn’t the director Bill Pulte republican?

Find out more: Fico challenges the FHFA boastful decision

The first obvious problem facing GSE is that neither Vantage 4.0 nor Fico 10T, which both include new rent data and public services, do not have a substantial assessment in terms of loan ratings or default. The current default model in the industry is the classic FICO, which excludes new consumption data and is used by banks, regulators, rating agencies and institutional investors around the world to assess the risk of defect.

The use of boasts in the origins of private mortgages increased considerably in 2024, but the use of Fannie MAE and Freddie Mac fell. Specifically, Vantagescore experienced a 166% increase in the use of the private mortgage market, but this was countered by an overall drop of 42% In total, the use of boastful for mortgages.

The GSEs, which are strongly based on the FICO scores, have in fact reduced the use of boastfulscore despite the decision of the FHFA in 2024 by the director Thompson to allow its use. What gives?

A CEO of the industry said that the use of two credit scores is “as having two social security numbers”. He told NMN that two scores should not have been necessary, although “the threat of boastful forced Fico to update their model”.

If you follow the progressive logic of the use of two scores, boastful and fico will compete with higher scores, the faults will increase, the Spreads will adjust and we are back to the place where we started after spending millions for the implementation of a new score regime. No matter how much progressives are trying, they cannot dictate market results.

“Currently, rating agencies are far from being an ability to model Ventangescore loans for private brand titles,” said CEO. “We cannot include Varotgescore loans in MBS of the private brand even if we wanted …” And the truth is that, the problems of notation on the side, many MBS buyers would not accept the new score.

Another large operational obstacle is that GSE do not have credible price networks for loans subscribed with VoloutagesCore 4.0 or Fico 10T. How do you create a loan price adjustment grid (LLPA) which examines the loan rating of the borrower and the loan / value ratio (LTV) of the loan? You look at the historical data. But we have not received real historical data data. The director Pulte and his staff will have to invent a transition table for both notes.

So that lenders can use VantagesCore or Fico 10T internally, they must arbitrarily decide how to assimilate a note on the classic Fico to one of the new rating scores. The whole world of loans and residential credit is governed by the classic FICO and the rules, regulations and rating methodologies that depend on it. Some 70% of all residential loans belong to Bond Investors, which all use the classic Fico.

Find out more: Fannie, Freddie add boastful, tri-merge keep

The American Bankers Association, as well as other industrial groups such as the Deathgage Bankers Association, the Housing Policy Council, and the Structured Finance Association, published a joint declaration politely recognizing the potential “advantages” of the announcement of the director of FHFA, Bill Pulte,.

But they also underlined the need for new clarity on “a number of questions and concerns of implementation”. GSE must respond to these concerns before lenders can effectively use new rating models. Translated into English English, this will not happen during the second Trump administration.

The various professional associations have repeated the Progressive Journal, that the use of boastfulscore can encourage “competition on the credit rating market, potentially resulting in lowering costs for consumers”. Absurdity. A race down in consumer loans can also result in higher costs for taxpayers and lenders by allowing consumers of consumers unable to support the ownership of ownership.

The inflation of the prices of houses and other subsistence costs has pushed ownership of property for many Americans, but the response of political decision -makers is often worse than the problem. How does it help a low-income family to be put in a mortgage and to buy the house by diluting credit dimensions, with all the initial costs that result from it, only to lose the house for foreclosure?

The real problem with consumer dimensions is not with models but the income of potential borrowers. Although the inclusion of rent and public services may increase certain attributes of a rating model, it comes down ultimately to the income and assets of the borrower and the LTV of the loan. The property, not the borrower, is the guarantee of the loan, which is why LTV is the main factor in most default probability models.

Find out more: The use of boasts in the mortgage origin jumps 166%

FICO scores are generally considered as a slightly more reliable predictor of the risk of overall mortgage defect, According to the Urban Institute. “We note, on average, the VantagesCore 4.0 scores are higher than the classic FICO scores, in particular for refinancing loans and for the properties of investors and secondary residences,” notes Laurie Goodman of the Urban Institute and Jun Zhu of the University of Indiana.

“The two credit rating models effectively distinguish high-risk and low risk borrowers,” they conclude. Note that researchers compare Varotagescore 4.0 to Fico Classic. There is little or no data for Fico 10T because little lenders use it. But how will the difference in models affect default defects?

In the end, the credit experience for lenders and mortgage insurers, not consumers, will be the real competition for credit scores. If, for example, private jumbo mortgages subscribed with VarotagesCore 4.0 undergo higher credit expenses than loans taken out with FICO 10T, then lenders will stop using the lower and more expensive score. The market will prevail.