Mortgage applicants can now get a home loan through VantageScore.
For years, the industry has relied solely on FICO scores to determine rates and eligibility.
But due to a recent policy change, both Fannie Mae and Freddie Mac will now accept FICO scores or the new VantageScore.
Additionally, the option will soon roll out to FHA loans as well, giving lenders and borrowers more options when it comes to credit scoring.
UWM’s new senior lender policy offers the option to use any score, whichever is best.
VantageScore is Already Used by Lenders to Decision Mortgages
Last week, HUD Secretary Scott Turner and FHFA Director William J. Pulte jointly announced the implementation of “decade-long new credit scoring models.”
This improved the Credit Score Competition Act of 2018 as signed by President Trump in his first term.
It allows the use of both VantageScore 4.0 and the new FICO Score 10T.
And just like that, lenders are off to the races, which is good to see, thanks to the current revisions to sales guidelines by Fannie Mae and Freddie Mac.
However, it remains in a sort of pilot mode for now because the VantageScore has not been tested and there is a lot at stake.
To address that concern, the nation’s largest lender, United Wholesale Mortgage, is offering a new score with a major caveat.
VantageScore Must Be Reduced By 20 Points To Use
While UWM is taking the lead in this, as they should be the top mortgage lenders by 2025, they are doing so cautiously.
Instead of taking the new points at face value, they will be reduced by 20 points to compensate for the lack of historical data and usage.
But all mortgage broker partners who use No-Cost Credit Report will see both models running at the same time, automatically.
So nothing needs to be done to get access. Consumers get to see both points, and use the one that is more favorable.
Let’s take an example where a borrower has an average VantageScore of 740 (mortgage lenders deduct three credit scores but use your average score).
It will be reduced to 720 under UWM rules.
However, that may still be better within a borrower’s FICO score of 716, allowing for cheaper rates and/or easier eligibility.
As such, borrowers who already qualify for FICO but have a higher VantageScore can get a better result because of lower price adjustments (LLPAs).
For the record, this only applies to conventional loans backed by Fannie and Freddie and the maximum loan-to-value (LTV) ratio is 80%.
Over time, it may expand to other products, such as FHA loans, and possibly even allow for higher LTVs.
Are There Gamification Concerns With Two Credit Card Models Available?
There have been concerns that lenders and mortgage lenders will try to make the system better by using any higher points.
So they can pull both and go with the one that offers the best value or the easiest fit.
But it looks like UWM is taking the lead on that and putting up a 20-point lender overlay to make sure that’s not the case.
It is not yet clear whether VantageScore is less predictive than FICO, or whether it tends to come out higher.
However, given the lack of history with the VantageScore, it appears that UWM has decided to move forward to avoid any controversy.
Chances are both scores will come in the same, and even if the VantageScore is too high, somehow, a 20-point haircut should level the playing field.
There will be situations where there will be an opportunity to use one or the other, especially if the VantageScore is low (and needs to be reduced by another 20 points).
Either way, it’s good to see the end of the monopoly and more choice when it comes to mortgage credit scores.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on X for the hottest.
