Fannie and Freddie Break FICO’s Grip on Mortgage Credit Scores

For decades, one company’s score decided which mortgages Fannie Mae and Freddie Mac would buy. That era is ending.

Federal Housing Finance Agency Director Bill Pulte announced Sept. 28 that the two mortgage giants will move to a single pricing grid that includes VantageScore alongside the traditional FICO score. Lenders selling loans to Fannie and Freddie can now pull a VantageScore instead of being locked into Classic FICO.

“We are Simplifying Mortgage Pricing following feedback from lenders and consumers,” Pulte wrote. “Instead of two separate pricing grids, which makes zero sense, Fannie and Freddie are hereby moving to ONE PRICING GRID with VantageScore joining the existing FICO Classic pricing grid.”

VantageScore 4.0, created by the three major credit bureaus, uses two years of trended credit data and can count on-time rent payments where reported, which Classic FICO largely ignores. For borrowers with thin or unconventional credit histories, the newer model often produces a higher score.

Rocket Mortgage said it will become the first major lender to use VantageScore 4.0 as its preferred model for all eligible loans. After about four months of testing, the company said the model helped more clients qualify while reducing credit scoring costs.

Investors noticed. Fair Isaac shares plunged 27 percent on Sept. 29, the stock’s worst single-day drop since 1989, according to Barron’s. The shares remain down roughly 60 percent on the year.

For Philadelphia-area homebuyers, the practical takeaway is that the score a lender pulls may soon differ from the one they see on a free credit app. Shopping lenders and asking which scoring model they use is becoming part of comparing mortgage offers.