In a July 8 social media post, Federal Housing Finance Agency (FHFA) Director Bill Pulte stated that Fannie Mae and Freddie Mac (the Enterprises) will maintain the long-standing tri-merge requirement requiring lenders to pull credit reports from all three national bureaus. The decision reverses the agency’s prior plan, crafted under former Director Sandra Thompson, to move to a “bi-merge” two-bureau requirement starting in the fourth quarter of 2025. Director Pulte also announced that lenders can use VantageScore 4.0 credit scores for loans sold to the Enterprises, and clarified certain items in a social media post on July 15. The change comes amid Director Pulte’s recent criticisms of FICO.
Background
Credit Scoring
Enacted in 2018 as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), the Credit Score Competition Act requires FHFA to set up a process for validating and approving alternative credit scoring models that the Enterprises can use when purchasing mortgages. In 2019, FHFA issued a final rule outlining the process for validation and approval of new credit scoring models. FHFA later announced in October 2022 that the Enterprises would transition away from the classic FICO credit scoring system and approve the FICO 10T and VantageScore 4.0 models. Within the October 2022 announcement, lenders would be required to deliver both FICO 10T and VantageScore 4.0 credit scores with each loan sold to the Enterprises, once implemented.
Credit Reporting
The October 2022 announcement also explained that the Enterprises would require the use of credit reports from any two of the three national bureaus – a “bi-merge” system – instead of the current three-bureau requirement. The agency opened a public comment docket on the change in March 2023 to gather industry feedback. After reviewing those comments, FHFA confirmed in February 2024 that the bi-merge standard would go forward. Implementation was scheduled for the fourth quarter of 2025.
July 8 Announcement
Director Pulte’s July 8 social media post stated that “Fannie and Freddie will ALLOW lenders to use VantageScore 4.0 with no current requirement to build new infrastructure (stays Tri Merge).” The July 15 post clarified that lenders can choose which single nationwide credit scoring model use: either Classic FICO or VantageScore 4.0. Notably, the initial “lender choice” options include Classic FICO, rather than FICO 10T. The July 15 post explained that the Enterprises are expected to publish historical FICO 10T data and adopt scores from the model “at a later date.” In addition, the Enterprises will “not initially” accept scores from multiple models on a single loan. Director Pulte and Senate Republicans highlighted that VantageScore’s use of alternative data sources, including rent and utility payments, could expand homeownership opportunities.
The July 8 announcement also maintained the requirement that lenders provide credit reports from all three nationwide credit reporting agencies, ending the bi-merge proposal that was scheduled to be implemented at the end of 2025. Since the proposed bi-merge plan was announced in 2022, industry groups and some members of Congress have voiced concern, warning that the bi-merge system may harm the Enterprises due to an incomplete accounting of an individual’s creditworthiness.
Next Steps
Director Pulte’s social media statement declared the policy “effective immediately.” The July 15 post explained that the Enterprises are in the “final step” of delivering loans scored using VantageScore 4.0, and that the Enterprises will inform sellers, servicers and other market participants, informed of next steps. Existing Selling Guide requirements remain in place. Director Pulte also recently signaled the possibility for additional initiatives in the credit reporting space, noting in a June 27 post that FHFA has launched a “full-scale review of all credit bureaus.”
