What Happened?
On July 8, 2025, U.S. Federal Housing Agency (FHFA)[1] announced that lenders will soon be able to use the VantageScore® 4.0 credit model or Classic FICO® via the tri-merge credit report requirement when they sell loans to Fannie Mae and Freddie Mac. Presently, lenders who sell mortgage loans Fannie Mae and Freddie Mac are required to obtain credit scores, when available, from a single model – the “Classic FICO” model.
Why It Matters
The FHFA announcement directs Fannie Mae and Freddie Mac to permit lenders to choose between two approved credit score models – Classic FICO and VantageScore 4.0 – for loans sold to Fannie Mae and Freddie Mac. The FHFA announcement implements the Credit Score Competition Act, which was enacted in 2018, and requires the FHFA to establish a process for Fannie Mae and Freddie Mac to validate more advanced credit score models. In 2022, after extensive testing and review by Fannie Mae and Freddie Mac, the FHFA announced the validation of two new credit score models – VantageScore 4.0 and FICO 10T. These new models consider additional sources of data, including rent payment history, and have the potential to score consumers more accurately. The FHFA announcement emphasized that permitting lenders to use either of the two credit models should help consumers, lenders, and other market participants realize the benefits of robust competition, such as lowering closing costs.
The FHFA contends that the introduction of newer credit score models will also improve risk management throughout the market because these new models are more predictive of default risk. Once implemented, lenders will be able to choose between Classic FICO or VantageScore 4.0 for loans sold to Fannie Mae and Freddie Mac but will not be able to use scores from multiple models on a given loan. The FHFA, Fannie Mae[2], and Freddie Mac[3] are expected to implement this policy change shortly at which time Fannie Mae and Freddie Mac will update their respective Selling Guide policies. Until then, Fannie Mae’s and Freddie Mac’s existing Selling Guide credit score requirements remain in place.
What To Do Now:
While the FHFA credit score initiative is innovation and could augment competition, potentially benefitting consumers, the addition of a new, untested credit scoring model could result in greater risk to the mortgage market. In its July 22, 2025 letter to FHFA Director William J. Pulte, the Structured Finance Association (SFA), warned, among other things, that:
“One of the more difficult challenges to address will be drawing the line between credit score providers competing for consumers’ business vs. a race to the bottom where consumers game the competition. Guardrails will be critical to help limit the risk that competition does not result in ‘credit score inflation,’ which will lead to increased yield premiums and therefore increased borrowing costs for all consumers.”
The implementation of the FHFA credit score initiative promises to be tricky because up to this point the lending industry has structured is basic risk assessment around the Classic FICO score. Consequently, the FHFA has a delicate balancing act in shepherding this market transition.
[1] https://www.fhfa.gov/policy/credit-scores
[2] https://singlefamily.fanniemae.com/originating-underwriting/credit-score-models
[3] https://sf.freddiemac.com/general/credit-score-models
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