FHFA Announces Credit Scoring, Upfront Fee Changes

The Federal Housing Finance Agency has made significant changes meant to improve lending access to low-income and first-time homebuyers.

At the Mortgage Bankers Association’s 2022 Annual Convention & Expo, FHFA Director Sandra L. Thompson announced that the agency had validated and approved the FICO 10T credit score model and the VantageScore 4.0 credit score model for use by Fannie Mae and Freddie Mac.

The two models will replace the Classic FICO, which the GSEs have used for two decades.

Thompson said the models will take multiple years and significant effort to introduce to the industry. But will the end result will be “improved accuracy and a more inclusive approach to evaluating borrowers.”

The new models improve accuracy by accounting for data such as rent, utilities, and telecom payments.

FHFA also said it is working towards allowing lenders to provide credit reports from two of the three nationwide CRAs, rather than from all three.

MBA President and CEO Bob Broeksmit, CMB, said the changes “should help broaden the scope of eligible borrowers and expand access to homeownership for underserved communities.”

The agency also announced the elimination of upfront fees for specific borrowers and affordable mortgage products. 

Fees will be waived for first-time homebuyers at or below 100 percent of area median income in most of the United States and below 120 percent of AMI in high-cost areas; HomeReady and Home Possible loans (Fannie and Freddie’s affordable mortgage programs); HFA Advantage and HFA Preferred loans; and single-family loans supporting the Duty to Serve program.

“Today’s announcement will result in savings for approximately 1 in 5 borrowers of the Enterprises’ recent mortgage acquisitions,” Thompson said.

Community Home Lenders of America applauded the news.

“With skyrocketing mortgage rates and run-ups in home prices in recent years, homeownership affordability has become extremely challenging – so this announcement is well conceived and most appreciated,” the group said in a press release.

To make up for the lost revenue, it will raise upfront fees for most cash-out refis beginning February 1, 2023.

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