In the days following the announcement that VantageScore 4.0 was suddenly in play for conventional mortgages, FinLocker‘s Brian Vieaux had to burst some bubbles.
Most of the 15 to 20 loan officers he spoke to were ecstatic about being able to use the new credit scoring model. Millions of new prospective borrowers could be scored with VantageScore, they said. That’s opportunity in a down market.
“I was like, ‘OK, guys, totally agree. If you can wave a magic wand and tomorrow — in your point of sale and your LOS, and the underwriting engines and all the technologies that that talk downstream — this was there and ready, yeah, I think it would open up some interesting opportunities with borrowers. And it will,” Vieaux said.
“The other side of it is talking to the owner-operators of these companies, and they’re like, ‘This doesn’t become reality till 2026.’”
For about a week, the mortgage industry operated in confusion about what comes next. It wasn’t even clear whether the Federal Housing Finance Agency (FHFA) wanted both FICO and VantageScore scores, or if they wanted lenders to choose between the two.
FHFA Director Bill Pulte on Tuesday afternoon clarified several key points about Fannie Mae‘s and Freddie Mac‘s embrace of VantageScore, which is collectively owned by the three major credit reporting bureaus — Experian, Equifax and TransUnion. The tri-merge credit report will also remain.
Pulte said lenders will be able to choose between FICO Classic, introduced in the late 1980s, and VantageScore 4.0. The GSEs will be working to update their Selling Guide policies, but at the moment they are not currently able to purchase mortgages with VantageScore 4.0 credit scores.
The agencies will also need to create a new loan level pricing adjustment (LLPA) matrix before it can purchase loans with VantageScore 4.0 credit scores.
Implementation challenges
Mortgage technology firms, credit reporting bureaus, resellers and the government-sponsored enterprises (GSEs) are already feverishly working to get VantageScore 4.0 off the ground.
Currently, there are technical issues and chokepoints that prevent adoption.
Michael Metz, operations manager at Arizona-based lender V.I.P. Mortgage, said it’s “pretty easy” to obtain either credit score from the credit bureaus, which can be done by acquiring a subscriber code.
But since the mortgage industry has been waiting for regulatory approval before implementing any changes, it’s not actually ready to submit the information to the GSEs.
“About a month ago, VantageScore was put on pause indefinitely, and all the work stopped. I’m glad it’s moved from, ‘we’ll look at it by the end of the year,’ to ‘we’re ready,’ but there’s still a lot that has to be done before we can actually move forward,” Metz said.
“The tech side is one big hurdle that needs to be handled everywhere, from pricing engines to the LOS integrations; that’s all going to have to end up getting retooled,” he added. “Most of them are not designed for the different methods; they are all set up for FICO.”
Larry Bailey, who runs Mortgage Workflow Partners, said that ICE Mortgage Technology‘s Encompass — by far the most popular loan origination system in the market — will be challenged. And he outlined bigger concerns.
“The two main problems are, how do I get the VantageScore ordered? And then how do I get the VantageScore to the delivery point? And so what will happen here is, if the GSEs are looking for this score, the score is inside of a field that’s not yet mapped for their integration to ingest. That’s the problem. It’s not Encompass,” he said.
ICE did not respond to HousingWire‘s request for comment. But according to Bailey, the larger challenge is the act of pushing the data to Encompass and for the GSEs to build a framework for receiving that data. Systems that aren’t API-based may struggle, he said.
Xactus President Shelley Leonard said the credit provider/reseller, which functions as a middleman, already uses VantageScore 4.0 outside of mortgage.
“Our technology Xactus360 is well prepared and we are actively supporting clients as they ask questions through the transition,” she said in a recent interview. “We’re working with the credit to enable VantageScore on all of our accounts so that we can deliver the score today.
“Integrations is really what it’s going to come down to from an implementation, complexity and timeline standpoint. The way we’re thinking about it is positive momentum moving forward.”
The credit reporting bureaus, Leonard said, can deliver a VantageScore 4.0 on a consumer today.
“We can request a VantageScore 4 and receive it. But from there, where does it go? Is it going to be delivered in the same field where the FICO score goes today or a separate field?” she asked. “That implementation question creates very different outcomes of what it’s going to take people to deliver it that way.
“… So that’s where I think that thought process has to go into. How can we adapt our systems as either as quickly as possible, or with the least amount of downstream or upstream impact to all the integrated parties? Because the ecosystem is so disparate. There’s so many players.”
How will it work?
While lenders have been working to understand how to compare the two credit scores, they also face uncertainty about how they’ll be compensated for loans under the different methodologies.
“My bigger question — even before figuring out how to compare them — is, if I have a borrower with a 680 FICO and another with a 680 VantageScore, will I be paid the same for those loans? Or will a 680 VantageScore be considered riskier than a 680 FICO? That’s a question both at the investor level and within MBS pools,” Metz said.
Investors will likely have the same questions, said Pete Mills, vice president of residential policy and membership engagement at the Mortgage Bankers Association.
“The rubber will hit the road if investors start paying differently for MBS with some threshold percentage of VantageScore loans. They might start pricing differently. We don’t know that,” he said.
Mills said there is uncertainty in the near term that investors might not pay up, which would slow adoption.
“They might discount, but over time, if they find that one is better than the other, they’ll pay up for it. I think there’s questions about the UMBS that are going to be really hard to wrestle with,” as well as GSE capital rules, he said.
Opening up opportunities
VantageScore estimates that using their credit model will result in approximately 33 million more consumers nationwide having access to a credit score that may aid them in obtaining a mortgage.
For companies like FinLocker that work with borrowers on building or improving their credit, this is a big potential boon.
“For FinLocker, from day one of our product, we’ve always had VantageScore. We’ve never had FICO, Vieaux said. “We did it for a number of reasons. One of the reasons was economics — it was 12 to 15 times less expensive for us to provide a consumer access to their VantageScore in our app than if we were to provide FICO.”
The other driver was around the concept of education and engagement with prospective homebuyers, especially first-timers. From that side, VantageScore made more sense than FICO.
“It opened up a wider funnel of consumers. Even though that score itself wouldn’t necessarily translate point for point into a mortgage, if someone was already scorable in the Vantage model, and they’re able to connect in our app, it unlocks by connecting to their credit. It unlocks a lot of the tools and features of our app to help that consumer,” Vieaux said.
“And if they were a thin file credit, but they were scored on Vantage and not FICO, presumably — if they were using our app for six, 12, 18 months, doing things that the app is kind of guiding them to get mortgage ready — chances are they’re also going to be creating a more robust credit profile and then be scorable in FICO.”
As for the trillion-dollar question of when it will be ready, VantageScore founder Barrett Burns told NFM Lending‘s Greg Sher on a webinar that if he had to guess, it would be sometime around the summer of 2026.
“We are patient,” Burns quipped.
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