Will Fannie Mae Accept VantageScore and FICO 9 By Mid-2016?

By: Curtis Knuth

Let’s get this out of the way…I’m a fan of the GSEs -- Fannie, Freddie and Ginnie.  I’m also a big fan of substantial changes at all three shops.  Fannie Mae’s announcement that they’re requiring the use of trended data from Equifax and TransUnion on single-family borrowers by mid-16’ will help the GSE’s portfolio performance in some, small measurable way.  Fannie’s single-family delinquency rate continues to shrink, down to 1.59% in September 15’ compared to 1.89% in December 14’ and continues to decline from the 1^st quarter of 2010.  Trended data from the credit repositories will certainly help originators identify good borrowers from the borderline and bad -- especially if they can score them.

New Congressional legislation and Fannie/Freddie’s regulator, the Federal Housing Finance Agency or FHFA, have pushed the GSEs to adopt new and alternative scores to qualify more consumers.  This is obviously exciting news to originators as they seek to open new opportunities as the total overall origination volume (purchase & refi) is expected to decline in 2016 compared to 2015.

The credit repositories (Experian, Equifax, TransUnion) developed algorithms several years ago that produced “trended data”, with TransUnion claiming to be the first in 2013 with their CreditVision® suite of solutions.

At its core, trended credit data allows a deeper view of how a consumer has managed their credit.  Are they rate surfing, transferring balances from one card to another with little payment on debt; or are they paying off/nearly paying off balances each month – and for how long?  Has there been a substantial increase in credit utilization over the past several months?

Trended data’s secret sauce is time.  Its algorithms gather insights over many months (up to 2 years) and allow them to be scored.  A lender can now see whether a score is trending upward or downward over a period of time.

Fannie’s DU score requirements list FICO 05’ as the most current score available to use; but here’s the kicker, it won’t score trended data.  Additionally, FICO 05’ doesn’t score non-traditional credit information, such as rental or utility payment history, which the CFPB wants the GSEs to use in their inclusion of the 26 million consumers that are “credit invisibles”.  The new scores are flat out better than previous versions, being more predictive of a borrower’s future credit behavior and producing scores on more consumers.  Lastly, VantageScore 3.0 now has a score range of 300-850 which makes for easier interpretation as it mirrors the score range utilized by FICO.

I think it’s a strong case that Fannie will move to accepting additional credit scores later this year.  Now, if we can only get them to accept 2 credit bureaus instead of 3...

Curtis Knuth is Executive Vice President at NCS (National Credit-reporting System).