– The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, has been busy trying to get lenders to adopt bi-merge credit reporting. Now, don’t worry if you haven’t heard of bi-merge credit reporting before – think of it as the avocado toast of the lending world. Fancy and boring at the same time.
– Bi-merge credit reporting is going matchy-matchy with FICO Score 10T and VantageScore 4.0 scoring models. If you think, ‘Wow, that sounds complicated,’ well you’re absolutely right! These new scoring models are designed to capture a wider net of credit behaviour, like how people actually use their lines of credit which is less about what kind of cereal they like, but more about if they’re the kind of person who always pays back what they owe.
– FHFA believes that adopting these rigorous credit scoring models will reduce the risk of defaults, or as I like to call it, the ‘Oh no, I can’t pay my mortgage this month’ moments.
– Lenders have been told to gear up and ready their systems to embrace these models by mid-2022. That means everyone working in lending needs to put on their learning caps and bone up on these new scoring models. The phrase ‘back to school’ suddenly has a new meaning!
A New Wave of Credit Reporting and Scoring Models
Bi-merge, FICO Score 10T, and VantageScore 4.0
Synchronizing adoption for a more robust credit outlook
Watch out now, the credits world is changing, real quick! The Federal Housing Finance Agency wants to make sure that lenders are using the latest and greatest credit reporting and scoring models to avoid any ‘I-can’t-believe-I-loaned-that-guy-money’ moments. What does it mean for the ordinary Joe or Jane? With a bi-merge credit report, it’ll be like lenders can see your financial soul. Every credit card swipe, loan you’ve taken, and late bill payment is on display. And the new scoring models? They’re the Sherlock Holmes of finance, deducing your credit worthiness from your financial behaviour. So better start being nice to your credit!
So, in plain speak, this could mean better loans for those who’ve been financially well-behaved, but tighter strings for the overly-ambitious credit enthusiasts. And for those in the lending business, well, it’s study time! Crack open those textbooks (or rather, PDFs) and get to grips with these new models. If you’re going to stay on top of the game in the housing finance world, these are the new rules. It’s less about being the best borrower or lender, but more about being the best borrower and lender in this brave new world of ever-evolving credit score models. Because as they say, the times, they are a-changin’!
Original article: https://www.inman.com/2024/02/29/new-rules-for-scoring-mortgage-borrowers-coming-in-q4-2025/
