Bill Pulte blew the doors off credit score modernization efforts in early September by instructing Fannie Mae and Freddie Mac to accept VantageScore 4.0 scores for mortgages from all lenders, opening up a pilot program first rolled out in April.

VantageScore was jointly launched in 2006 by the three national credit bureaus — Equifax, Experian and TransUnion — to compete with the Classic FICO credit score.

But perhaps more consequential than imposed adoption across the primary mortgage market was how Pulte flipped the script on secondary mortgage markets broadly viewed as the kink in the hose of more rapid progress toward credit score modernization.

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On Sept. 9, Pulte — who serves as director of the Federal Housing Finance Agency (FHFA) and board chair of its regulated entities, Fannie Mae and Freddie Mac — said that all mortgage-backed securities, credit risk transfers and securitized products issued by the pair will now carry a VantageScore 4.0 score and the traditional FICO credit score.

“This allows everyone to keep using their FICO-based models even if there is a VantageScore,” said one industry source, adding that his firm’s analysis “shows that having both scores can improve forecasts and modeling.”

But both scores will only be included on files submitted to the government-sponsored enterprises (GSEs) in certain instances, according to updated disclosure guidance published by Fannie Mae on Tuesday.

The latest guidance indicates that the GSEs will begin disclosing securities with multiple scores on Oct. 19. Furthermore, loan files will only include scores from both FICO and VantageScore if lenders pull both reports.

Lender choice remains in effect, meaning GSE-approved sellers can originate and submit loans with just FICO or just VantageScore. But if lenders pull both scores, both must be included in what they submit to Fannie and Freddie.

What the move means for secondary markets

In the near term, the announcement may do little to change investor decisioning based solely on VantageScore models, experts say. Early adopters of VantageScore may choose to only use that model, leaving investors with limited clarity about how VantageScore benchmarks to its FICO counterpart.

But experts tell Scotsman Guide that the move stands to accelerate VantageScore investor adoption by putting secondary market participants at a competitive disadvantage should they choose to not begin incorporating the model into their databases and analytics.

“Right now, whole loan investors that are buying loans and aggregators aren’t quite ready for this, even though they’re doing it themselves on the retail side of things,” explained Chris Bennett, founder and chairman of Vice Capital Markets, a mortgage hedging advisory firm. “But they are going to be ready very quickly.”

By requiring that Classic FICO scores still accompany VantageScore submissions if lenders pull both scores, experts also point out that the FHFA has provisionally solved for two major impediments to more rapid VantageScore adoption: substituting FICO scores with VantageScore outright, or instituting lender choice outright, which on their own have been seen as non-starters because of likely data degradation.

Placing VantageScore into existing secondary market data flows ultimately thrusts the new model into what effectively becomes a live benchmarking exercise for loan performance, pricing and historical tracking. Widespread reliance on legacy technology in the primary market has made collecting and tracking VantageScore performance a disparate challenge for lenders.

“One tough part is that the loan origination system providers haven’t done a good job of building out the capacity to house these different credit scores in their system,” said another industry source. “They are definitely catching up and some already have this built into their platforms, though.”

When the FHFA first rolled out VantageScore adoption for a few dozen of the country’s largest mortgage lenders several months ago, Bennett immediately began building the data capacity to include VantageScore on mortgage bid tapes his firm provides to investors. Roughly 1 in 15 U.S. mortgages are traded or hedged by Vice Capital, the company says.

Syncing up risk tolerances and operational capacities across lenders, investors and servicers remains the difficult balance that market participants and regulators continue to navigate. For some companies, these changes are fairly new. For most companies, however, the changes are really new.

“We got to make sure that these lenders are actually comfortable with the risk of VantageScore 4.0. It’s not enough to just say, ‘Well, I can sell the loan and it should be the same amount of money,’” said Bennett. “The lenders themselves need to be comfortable, as does the buyer of any servicing rights that go along with this, or a whole loan buyer.”

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This story has been updated to include updated guidance from Fannie Mae. An earlier version of this article incorrectly stated that FICO credit scores had to be included in loan files originated with VantageScore.