FHFA Announces Timelines for Credit Score Transition
Written By: Joel Palmer, Op-Ed Writer
The Federal Housing Finance Agency (FHFA) will soon begin to gather industry feedback on implementation of new credit score models with the goal of incorporating those models by the fourth quarter of 2025.
Last week, FHFA announced its timeline for replacing the Classic FICO credit score model with FICO 10T and VantageScore 4.0. The transition to the new models also includes changing the requirement for three credit reports to only two credit reports for single-family loan acquisitions by Fannie Mae and Freddie Mac.
FHFA said the enterprises have started to solicit public input on the projected implementation process. The agency said it and the enterprises will "work with stakeholders to ensure a smooth transition to the new credit scores and the new credit report requirements that minimizes complexity and avoids unnecessary costs.”
“Obtaining public input in a transparent manner and considering the feedback is critical to a successful transition,” said FHFA Director Sandra L. Thompson.
FHFA estimates the switch from the three credit report requirement to two could happen by the first quarter of next year.
Implementation of the new credit score models is expected to occur over two phases in 2024 and 2025:
Phase 1, estimated to begin in the third quarter of 2024, will include delivery and disclosure of the additional credit scores.
Phase 2, estimated to occur in the fourth quarter of 2025, will include incorporation of the new credit score models into pricing, capital, and other processes.
During the fourth quarter of 2023, the timeline calls for the publishing of Classic FICO data to support the credit report update.
FHFA said the staged approach to implementation is designed to “ease the transition complexity for stakeholders.”
In October 2022, FHFA announced the validation of FICO 10T and VantageScore 4.0 for use by the enterprises.
Once implemented, lenders will be required to deliver both FICO 10T and VantageScore 4.0 credit scores with each loan sold to the enterprises.
The process is part of an initiative to modernize credit score model requirements, which began in 2014 following passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act. A section of this law required FHFA to create a process for validating and approving credit score models.
FICO 10T incorporates trended credit bureau data. Different than traditional credit bureau data, the use of trended data considers a historical view of data such as account balances for the previous 24+ months, giving lenders more insight into how individuals are managing their credit.
When it was launched more than two years ago, FICO said the new credit score could reduce mortgage loan defaults by 17 percent compared to the traditional FICO score used in the industry.
VantageScore claims its 4.0 version added features that make it possible to score 37 million more U.S. adults than previously possible. This model also uses trended credit bureau data.
The Classic FICO model has been the standard credit score model for more than 20 years.
Fannie Mae and Freddie Mac have pages on their websites dedicated to the credit score transition.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning
