Expanding Credit and Expanding Opportunities for Home Ownership

Posted November 7, 2022 in Special Features

The lending side of the homebuying equation is often as important, if not more so, than supply and demand, perhaps now more than ever as homebuyers are facing higher interest rates.

The Federal Housing Finance Agency (FHFA) has recently drafted policy to help consumers get the best rate by expanding what is reported within a typical FICO score, announcing the validation and approval of both the FICO 10T credit score model and the VantageScore 4.0 credit score model for use by Fannie Mae and Freddie Mac. In simple terms, this means that the new models will produce a more accurate credit score by capturing payment histories for items such as rent, utilities, and telecom payments which were not previously factored into a credit score. FHFA expects the implementation of the new credit score models will be a multiyear effort. The enterprises (Fannie Mae & Freddie Mac) have been relying on the Classic FICO as its means to measure a buyer’s worthiness for loan approval for over 20 years – and this much-needed update should help many potential buyers.

CCAR’s parent organization, the National Association of Realtors (NAR) applauds the recent move by FHFA. “NAR commends FHFA for announcing their transition from using Classic FICO to allowing Fannie and Freddie to use newer versions of FICO and Vantage,” said Leslie Rouda Smith, the 2022 President of the National Association of REALTORS®. “NAR has advocated for the use of newer credit scores for years as a means of fostering competition, innovation and access, and we are pleased that FHFA has taken the first step to making this change. There is a long road ahead to implement this change, but it will ultimately create a more accurate gauge on a buyer’s ability to purchase a home by including alternative credit data.” Said Leslie Rouda Smith.

In addition, the FHFA recently announced a reduction in loan-level pricing adjustments that Fannie Mae and Freddie Mac charge on first time buyers, low and moderate income buyers, and underserved groups and market sectors. In March 2008, the Enterprises created loan level pricing adjustments, which are additional fees based on loan-to-value ratios, credit scores, and other risk factors. These charges are passed on to borrowers, typically in the form of higher mortgage rates. The reduction of loan-level pricing adjustments will allow homebuyers to face less of a financial burden when buying a home. This is an important move to open up opportunities for homeownership in low income and marginalized communities that have historically prevented from entering the real estate market.

CCAR along with NAR will continue to be a voice for policies that expand home ownership opportunities for all.

Justin Wood,
Government Affairs DirectorClark County
Association of REALTORS®