“Historic mortgage market news incoming,” Bill Pulte wrote on X Wednesday afternoon.

Seven minutes later, the director of the Federal Housing Finance Agency (FHFA) revealed in a separate post that all mortgage-backed securities (MBS), credit risk transfers and any other securitized product issued by Fannie Mae or Freddie Mac “will now carry a VantageScore, in addition to a FICO score.”

“One company cannot hold the market hostage,” he added, referring to FICO, whose Classic FICO model has been a mortgage industry mainstay for years. VantageScore, a newer company jointly owned by the major credit bureaus Equifax, Experian and TransUnion, is a direct competitor to FICO.

Advertisement

The announcement served as an exclamation point on a barrage of social media missives issued Wednesday by Pulte, who also serves as board chairman of Fannie and Freddie. The government-sponsored enterprises purchase mortgages from lenders and securitize them into MBS products sold on the secondary market.

The common thread to Pulte’s writings was recently implemented and proposed changes to mortgage credit scoring. Last week, Pulte instructed Fannie and Freddie to accept the VantageScore 4.0 credit scoring model for all lenders following a limited rollout in April. He also said he’s considering green-lighting a bi-merge framework that would require lenders to pull credit data from just two bureaus instead of three.

On Wednesday, Pulte claimed FICO “is not interested in offering competitive costs but instead uses various means to increase price on the American people,” noting that he has asked the company to provide competitive pricing for FICO 10T, a newer model still in the testing stage with Fannie and Freddie.

FICO did not immediately respond to a request for comment Wednesday.

In another post, Pulte said he has meetings scheduled with Experian, Equifax and TransUnion. He added that his agency is “studying using only a single credit report and bi-merge credit reporting.”

Secondary considerations

A FICO blog post from 2023 noted that “no MBS can be properly valued without an underlying FICO Score, the key piece of information that informs investors whether they are making a sound investment or simply rolling the dice.”

Pulte’s announcement challenges that premise by adding VantageScore to the information available to MBS investors — though it notably stopped short of allowing just VantageScore without a FICO score.

Industry sources who spoke with Scotsman Guide after the news broke had mixed reactions. Some believe MBS investors will welcome the additional data points, though others expressed uncertainty over the logistics of the rollout.

One source noted that many loan origination systems do not currently have the ability to easily transmit scores from both providers to Fannie and Freddie, suggesting the move could increase origination costs in the short term.

Another believes including both scores as opposed to either score on new loans reduces the risk of gaming. However, they said it will take time for investors to incorporate VantageScore into their forecasting models, muting the initial impact of the change.

—–

Ryan Kingsley contributed reporting.