Credit Score Innovation is Redefining the Industry (Sponsored by Equifax)
Joel Rickman is Senior Vice President and General Manager of U.S. Mortgage and Verification Services with Equifax
For years, mortgage lenders have faced the delicate balance of protecting portfolio stability while responsibly helping more people achieve the American dream of homeownership. However, relying on a single, non-trended credit score risks overlooking creditworthy borrowers, hindering both growth and competitive advantage, as well as preventing them from purchasing homes.
The Federal Housing Finance Authority’s (FHFA) announcement allowing Fannie Mae and Freddie Mac to accept VantageScore marks a significant shift in the mortgage credit system. This move introduces much-needed competition and innovation, ultimately benefiting the entire industry—from originators to the consumers they serve.
One of the most compelling reasons for this transition is the ability to gain a more complete and holistic view of a borrower’s financial reliability. Newer models, such as VantageScore 4.0, move beyond “snapshot” in time scores by utilizing up to 24 months of trended credit history. Critically, they also incorporate alternative data not historically included in traditional consumer credit files. These insights provide a more complete financial picture of a borrower that can make mortgage underwriting faster and easier.
For mortgage originators, this means leveraging data points such as:
• Trended data
• Rent payment history
• Utility, phone, and pay TV payments
By incorporating these alternative data points, lenders can make more informed, inclusive decisions and confidently assess a wider segment of the market, particularly younger consumers and first-time homeowners with thin credit files.
The expansion of eligible borrowers powered by these new scoring models is a powerful driver for the industry.
• Greater Market Penetration: VantageScore 4.0 can accurately score more consumers than traditional scoring models, potentially leading to increased eligibility for homeownership and better pricing for a significant number of households.
• Economic Stimulation: Many newly eligible borrowers reside in rural or historically high-rental areas where housing demand has been low. Expanding credit access here can stimulate local economies and foster wealth creation in communities that need it most.
• Cost Stabilization: The introduction of competition is also expected to help stabilize the rising costs associated with credit scores, delivering financial benefits to both originators and consumers.
The mortgage industry is already making positive strides toward this new environment. The three Nationwide Consumer Reporting Agencies (NCRAs) have successfully put the necessary infrastructure in place to deliver VantageScore 4.0 data to originators. Many large lenders have completed their essential due diligence, positioning them for a smooth transition.
For all mortgage decision makers and originators, the message is clear: the competitive advantage of reaching more customers is a strong motivator. Now is the ideal time to ensure your institution is prepared to adopt the new scoring environment. Embracing VantageScore innovation provides a competitive advantage by enabling originators to fully participate in an expanding market and accurately serve a broader, credit-worthy segment of the consumer base through more complete, data-driven insights.
(Sponsored content includes material submitted independently of the Mortgage Bankers Association and MBA NewsLink and does not connote an MBA endorsement of a specific company, product or service. For more information about sponsored content opportunities, contact Bill Farmakis at bill@jlfarmakis.com or 203/834-8832.)
