Real estate is changing fast, and so must you. Inman Connect San Diego is where you turn uncertainty into strategy — with real talk, real tools and the connections that matter. If you’re serious about staying ahead of the game, this is where you need to be. Register now!

Mortgage giants Fannie Mae and Freddie Mac weren’t informed in advance that they would be required to sign off on loans qualified using the new VantageScore 4.0 credit score algorithm, mortgage industry insider Christopher Whalen said Wednesday.

Because rating agencies and bank regulators aren’t prepared to work with the new score either, Whalen said he expects lenders will be slow to make the switch to VantageScore 4.0 — a credit scoring algorithm developed by the big three credit bureaus to challenge the FICO Classic score now used by most mortgage lenders.

Bill Pulte, the director of Fannie and Freddie’s federal regulator, announced new rules for evaluating borrowers who apply for conventional loans backed by the mortgage giants on the social media platform X Tuesday.

Changes to those rules were mandated by Congress in 2018, and the Federal Housing Finance Agency had been working with lenders for several years on implementing them.

But Pulte’s announcement appeared to depart from the carefully laid-out plan previously put forward by the FHFA.

The FHFA announced in 2022 that it had signed off on VantageScore 4.0 and a new FICO score, FICO 10 T, for future use by Fannie and Freddie. Under a timeline proposed in 2023, lenders were to move from the current Classic FICO credit score model and start using both VantageScore 4.0 and FICO Score 10 T by the end of this year.

But Fannie and Freddie abandoned that timeline on Jan. 16 — four days before President Trump’s inauguration — with no explanation.

In announcing on X that Fannie and Freddie would be required to start accepting loans evaluated using VantageScore 4.0 on Tuesday, Pulte caught mortgage lenders by surprise — and left them wondering exactly how the new rules will work.

The Mortgage Bankers Association issued a cautious statement welcoming the move, saying Pulte’s proposal “could help to accomplish the goals of added competition in the credit score space and reduced consumer costs, if implemented correctly.” But the trade group said there are “numerous implementation questions” that need to be addressed in order to realize such benefits.

Because the FHFA didn’t issue a formal rule or issue a press release Tuesday, mortgage lenders were left wondering:

  • Will lenders be allowed to submit loans reviewed using only VantageScore 4.0, or will Fannie and Freddie also require FICO Classic scores currently in use?
  • Are there still plans to allow Fannie and Freddie to accept loans scored by the new FICO Score 10 T?
  • Will loan level pricing adjustments (LLPAs — fees charged by Fannie and Freddie according to borrower risk) be different for borrowers scored by VantageScore 4.0?
  • Are private mortgage insurers (required by Fannie and Freddie when borrowers put less than 20 percent down) ready to back loans scored using only VantageScore 4.0?
  • Will investors in mortgage-backed securities (MBS) — the ultimate source of funding for most mortgages — treat loans scored using VantageScore 4.0 the same as loans scored with FICO Classic?

Rating agencies, banks and investors still use FICO Classic, Whalen said on X, and “there is no track record” of how mortgages evaluated using VantageScore 4.0 or FICO Score 10 T will perform.

(In December, Fair Isaac announced that Cardinal Financial had sold the first batch of government-issued mortgage-backed securities to include VA loans qualified using the FICO Score 10 T. More than 21 mortgage lenders use FICO Score 10 T for non-Fannie and Freddie loans, the company said at the time.)

Whalen, an industry veteran with connections at Fannie and Freddie, is chairman of Whalen Global Advisors LLC. His past experiences include senior research positions at Kroll Bond Rating Agency and Carrington Holding Co.

“This ill-considered decision by Pulte will force buyers of loans to come up with a ‘transition table’ for Vantage 4 to FICO 10, but such attempts will be imprecise,” Whalen posted on the social media platform X Wednesday.

The FHFA, Fannie Mae and Freddie Mac did not respond to Inman’s requests for comment.

The National Association of Realtors welcomed Pulte’s announcement Wednesday, saying it will allow mortgage lenders to use VantageScore 4.0 “alongside or in place of traditional FICO scores” when assessing borrower creditworthiness.

Pulte — who, after being appointed by the Trump administration to lead the FHFA, purged Fannie and Freddie’s boards of directors and made himself the chair of both companies — claims allowing lenders to use VantageScore 4.0 will help more renters qualify for a mortgage.

Bill Pulte

“Today, we allowed for RENT payments to COUNT toward qualifying for a MORTGAGE,” Pulte posted on X Tuesday. “If ‘Obama’ or ‘Biden’ did that (they didn’t), it would be nonstop news coverage. When President Trump does it, very few people report it.”

But FICO Score 10 T also considers “trended credit data and additional data such as rent, utility, and telecom payments, which are not currently considered as part of the Classic FICO score,” Fannie Mae noted in a January update on plans to transition to the new scores.

The move to require Fannie and Freddie to accept VantageScore 4.0 is a victory for the big three credit bureaus who developed it — Equifax, Experian and TransUnion. VantageScore claimed Tuesday that implementation of the new score will boost the eligible pool of mortgage applicants by 5 million borrowers.

The credit bureaus maintain files on consumers, tracking their debts and repayment history — information that’s fed into credit score algorithms developed by FICO and VantageScore to generate credit scores.

Fee increases by both Fair Isaac and the credit bureaus have been a source of frustration for lenders and their clients. But Pulte also backed down from the FHFA’s original proposal to move from tri-merge to bi-merge credit reporting, which would have allowed lenders to pull credit scores from two credit bureaus instead of three.

TransUnion had opposed plans to move to bi-merge reporting, claiming that using only two credit scores “will often result in an incomplete and inaccurate picture being painted of a potential borrower — particularly if a consumer’s most favorable set of credit data is the one that gets excluded.”

In a blog post last month, MBA President Bob Broeksmit characterized tri-merge reporting as “an anachronism from the days when there were significant disparities in coverage by the credit bureaus.”

Broeksmit said the MBA has been studying the feasibility of using a single credit report to score government-guaranteed loans, an approach that “would mirror that of most other consumer finance markets, including home equity loans and auto loans – which have seen success with this structure.”

Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.

Email Matt Carter