FAQs: Credit Score and Credit Reports Initiative (Dec. 2023) (2024)

Joint GSE Credit Score and Reports Initiative FAQs

Last Updated: 12/11/2023

The Credit Score and Credit Reports Initiative is a two-phase, multiyear effort to update the current credit reporting requirements and to replace the existing credit score model used for loans sold to Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are doing this work with input and feedback from industry stakeholders.

For more detailed information on this initiative, see the related articleJoint GSE Credit Score and Reports Initiative.

Credit Report Update

The longtime Fannie Mae and Freddie Mac requirement known as “tri-merge” to obtain three credit reports for each borrower on a loan will change to require only two credit reports per borrower (“bi-merge”).

Credit Score Models Update

Fannie Mae and Freddie Mac will require lenders to deliver credit scores based on the new FICO® Score 10 T and VantageScore® 4.0 rather than Classic FICO.

Note: Changes since the last update are marked either NEW or UPDATED. Minor (non-substantive) wording, number, and heading changes are not marked.

Frequently Asked Questions

1. Why are FHFA and GSEsundertaking this initiative now?

For nearly 30 years, the GSEs have required lenders to deliver credit scores based on the Classic FICO model. In 2014, the Federal Housing Finance Agency (FHFA) and the GSEsbegan an effort to modernize the credit score model requirements. In 2018, Congress required the FHFA to create a process for validating and approving credit score models. The validation and approval of FICO Score 10 T and VantageScore 4.0 is the result of a lengthy effort by the FHFA and the GSEsto further support innovation and inclusion in credit score models used by the GSEs.

2. Will FHA/VA/USDA align with the GSEs on these initiatives and timelines?

We understand this is a primary concern for the industry. Please note thatFHA, VA, and USDA retain the authority to determine whether to take any specific actions regardingtheir program requirements.

3. Why is the FHFA beginning a new phase of public engagement related to CreditScoreImplementation?

Since the approval of FICO Score 10 T and VantageScore 4.0 and the planned transition froma tri-merge credit report requirement to allow a bi-merge credit report option, FHFA and theGSEs have focused on ensuring the move to these updated requirements is as smooth aspossible and minimizes unnecessary costs or complexity for market participants.

FHFA and the GSEs are committed to engaging with a wide range of stakeholders in the housingfinance system. This new phase of public engagement will build on the feedback collected earlierthis year during the industry feedback window and provide a forum for continued identification ofa wide variety of issues, opportunities and challenges. Interested stakeholders can share theirperspectives and the FHFA and the Enterprises can seek feedback and views or specificquestions or challenges related to the implementation of the new Enterprise credit scorerequirements.

4. What are the benefits of moving from “tri-merge” to “bi-merge” credit report requirements?

This change to Fannie Mae and Freddie Mac’s credit report requirements is expected to encourage innovation and competition in the market.

5. How will the tri-merge to bi-merge credit report update impact pricing for loans? Do the GSEs plan to modify eligibility and pricing score breaks/thresholds, and if so at what stages of the initiative could that happen?

If the proposed credit score methodology for Classic FICO is determined to be average then lower, the GSEs do not expect the values in the pricing grid to change as a result of the bi-merge implementation. The pricing grids will be updated when the new credit scores are implemented.

6. Will lenders be allowed to pull three credit reports on a borrower and then select the highest two of the three scores?

FHFA and the GSEs expect that if three credit reports are obtained, lenders will be directed that allthree must be delivered.

Note: FHFA expects that the implementation date for the new score calculation of average thenlower will occur later than 1Q 2024.

7. Is the bi-merge credit report required? Will lenders be permitted to choose which twocredit reporting agencies will be used?

Delivering a bi-merge credit report is optional, and lenders can choose to continue with the trimerge report. If lenders choose to use the bi-merge credit report option, they may select thecredit reporting agencies with which they do business (as is current practice).

Reminder: The required changes to Freddie Mac’s Indicator Score and Fannie Mae’sRepresentative Credit Score calculation will apply to both bi-merge and tri-merge credit reports(see Question 15).

8. What are the benefits of FICO Score 10 T and VantageScore 4.0?

Lenders, investors, and other industry stakeholders, as well as borrowers and first-time homebuyers, can expect more inclusive credit scores as well as enhanced safety and soundness for the housing market.

FICO Score 10 T and VantageScore 4.0 are more predictive than Classic FICO and provide a more precise assessment of credit risk than the current model. Also, both models consider trended credit data and additional data such as rent, utilities, and telecom payments when available.

Both Fannie Mae and Freddie Mac already consider trended credit data and/or rental payments when available in their automated underwriting systems’ comprehensive risk assessments for mortgage eligibility recommendations.

The FICO Score 10 T and VantageScore 4.0 have different reason codes from classic FICO. Adverse action notices will need to be updated.

To learn more, please visit FICO Score 10 T and Vantage Score 4.0.

9. Will moving from tri-merge to bi-merge require updated guidance to lenders on how to calculate the borrower Representative Credit Score (Fannie Mae) or Indicator Score (Freddie Mac)? Why are changes to the score calculation methodology being considered?UPDATED

Yes, there will likely be a new method of calculating the Representative Credit Score (Fannie Mae) and Indicator Score (Freddie Mac). ). If no change were made, the current score methodology (median of three credit bureaus or lower if there are two credit bureaus) could shift credit scores lower (even though the risk of the loan is the same), potentially resulting in an increase to the cost of a mortgage for borrowers.

The GSEs plan to migrate to an “average score” calculation. Research has shown that the proposed average methodology is a better representation of the risk of the loan and could reduce impact to borrowers from the change in methodology.

Note: On November 21, 2023, FHFA published a final rule modifying certain provisions of the Enterprise Regulatory Capital Framework. FHFA did not, at that time, modify the procedure for selecting a representative credit score for a single-family mortgage when multiple credit scores have been submitted for at least one borrower as part of the final rule. The Enterprise Regulatory Capital Framework Notice of Proposed Rulemaking contained a proposed methodology which would have required an Enterprise to use an average credit score for each borrower whenever multiple scores are present (as opposed to the current methodology which requires an Enterprise to select the median borrower credit score when three scores are present or the lower borrower credit score when two scores are present). In consideration of the delayed implementation date for the bi-merge requirement and the ongoing public engagement related to credit scores, FHFA has determined to not adopt the proposed change to the calculation of representative credit scores at this time. FHFA may, in the future, finalize this aspect of the proposed rule.

10. How will the loan-level credit score calculation change when the bi-merge is implemented?

As referenced in the Enterprise Regulatory Capital Framework Notice of Proposed Rulemaking¹, FHFA has proposed two methodologies for calculating the Representative Credit Score for purposes of capital requirements. While the proposed rule does not directly impact pricing calculations, we anticipate that pricing will largely align to capital-related decisions. To avoid multiple recalibrations of the pricing grids, we will potentially switch to the average across bureaus, then lower across borrowers methodology² when the bi-merge is implemented. When the new credit scores are implemented, FICO Score 10 T and VantageScore 4.0 will likely use the average across bureaus then average across borrowers methodology³ for the Representative Credit Score and Indicator Score, pending FHFA’s final rulemaking decision and public feedback. Moving to the new credit scores will require a recalibration of the pricing grids.

• Credit Score Report Update (Tri-merge to Bi-merge Report) (Classic FICO): “Average/ThenLowest”²
• Credit Score Model Update (FICO Score 10 T, VantageScore 4.0): “Average/ThenAverage”³

Note: Even if Lenders continue to obtain a tri-merge credit report, they will be impacted by the credit score calculation change.

1.Score calculation methodology is subject to the Notification of Proposed Rulemaking process

2.“Average/Then Lowest” = average of scores for each borrower, then (for multi-borrower loans) use the lowest of those resulting averaged scores

3.“Average/Then Average” = average of the new scores for each borrower, then (for multi-borrower loans) use the average of those resulting averaged scores

11. What will be the potential borrower-level score under each score calculation method proposal?

The table shows examples of potential score calculations options (Average / then Lowest and Average/ then Average) across various borrower scenarios*.

Step 1:Calculate the borrower-level score by taking the average of the bureau-level scores separately for each borrower on the application. The result can be found in the green column.

Step 2:Calculate the loan-level score for proposed methodologies:

• "Average/Then Lower" approach for Classic FICO: Take the lower of the borrower scores in the green column to get the loan level-score. The result can be found in column 7.
• "Average/Then Average" approach for new scores: Take the average of the borrower-level scores (green column). The result can be found in column 8, the blue column.

*These two potential scenarios are subject to further revision and do not constitute any final decisions by the GSEs or FHFA.

12. When will Classic FICO scores stop being reported and ultimately retired?

The GSEs will require Classic FICO reporting for the near-term. Mortgage market participants will be given significant lead time before the retirement date of Classic FICO when the new FICO Score 10 T and VantageScore 4.0 score models are more fully implemented.

13. Will lenders be expected to average FICO Score 10 T and VantageScore 4.0 scorestogether for loan delivery?

No.Lenders will be required todeliver average FICO Score 10 T and average VantageScore 4.0 separately in the ULDD. SeeQuestion 16for additional information on the ULDD.

14. Will loan origination system (LOS) vendors and other technology service providers update their systems to incorporate the changes?

Yes. Technology service providers will be expected to update their systems to meet Fannie Mae’s and Freddie Mac’s published specifications updates, policy changes, and required dates set forth in Fannie Mae’s Selling Guide and Freddie Mac’s Single-Family Seller/Servicer Guide.

15. Through which systems will the new scores need to be delivered to the GSEs?

For Fannie Mae: As is the current process, lenders will be expected to provide the new scores to Fannie Mae’s Loan Delivery system the same way they deliver Classic FICO today (via the ULDD file); Desktop Underwriter® (DU ®) will receive the new credit scores via credit reports submitted/reissued to DU as part of the automated underwriting process.

For Freddie Mac: Customers will deliver the new scores the same way they deliver Classic FICO today (in the ULDD file) to Loan Selling Advisor®. Lenders submitting loans to Freddie Mac’s Loan Product Advisor® will continue to have options to order credit reports as part of the automated underwriting process, using the new credit score models at a future date still to be determined.

16. When will the Uniform Loan Delivery Dataset (ULDD) specifications be published and what updates will be made?

As announced, the GSEs published an updated ULDD spec (Phase 5) on Sept.12, 2023. Thespec is inclusive of changes required for the bi-merge credit report option, updated averageborrower representative credit score calculation, as well as the new FICO Score 10 T andVantageScore 4.0 credit scores and related Representative Scores/Indicator Scores with to-be-determined implementation dates where appropriate. The GSEs also included updates neededto support the deployment of the redesigned Uniform Appraisal Dataset (UAD) 3.6 and alignmentwith Fannie Mae’s Selling Guide and Freddie Mac’s Single-Family Seller/Servicer Guide, as wellas business critical needs in this release of the ULDD specification.

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