Fannie Mae and Freddie Mac Shift Toward VantageScore Reshapes Mortgages

what happened

Dow Jones Newswires, citing The Wall Street Journal, reports that the U.S. mortgage industry is moving beyond FICO’s near-monopoly toward rival VantageScore. The model was developed jointly by Equifax, Experian and TransUnion. The decision by regulators and lenders affects the $13 trillion mortgage market, while Fair Isaac shares have fallen about 60% this year.

The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, directed them last month to approve VantageScore 4.0 for all lenders. Rocket Mortgage selected it as its preferred model; United Wholesale Mortgage said it would use the higher of the two scores, and PennyMac deployed VantageScore across its businesses. Fannie and Freddie loans originated with VantageScore reached nearly $4 billion in August, versus $8 million in April. Inside Mortgage Finance said roughly 3% of the $400 billion sold into securitizations by Fannie Mae and Freddie Mac during the six months through September was linked to VantageScore.

Pricing grids introduced during the 2008 housing crisis originally treated the scores differently. A version released in early September equated a 720 VantageScore with a 700 FICO score. At the end of September, FHFA chief Bill Pulte removed that differential and introduced one set of grids, allowing lenders to use the higher available score. Rocket’s Bill Banfield said VantageScore 4.0 averaged 11 to 12 points above FICO Classic in 1.4 million reports reviewed from May through September. Milliman found that comparable loans during the pilot period carried rates up to 0.2 percentage point higher when underwritten with VantageScore.

The Trump administration says the change will lower mortgage costs and improve affordability. Mortgage-bond investors, however, are questioning whether the new system properly compensates them for risk. Analysts and market participants expect lenders could raise rates to offset adverse selection. “We do not care who wins,” Pulte wrote on X. “We just want [FICO] and Vantage to compete — not be a cartel or abusive monopolies.”

why it matters

The scoring change affects underwriting standards, mortgage-bond risk models and funding costs for loans backed by Fannie Mae and Freddie Mac. If investors view the systems as insufficiently comparable, greater market risk could outweigh the administration’s affordability objective.

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