The 99¢ Credit Score Era Begins*

On Wednesday, Fannie Mae & Freddie Mac officially updated their Selling Guides to accept a non-FICO Classic credit score for the first time. VantageScore is officially here, & this is legitimately a big deal. 

But there are still thorny questions left to be answered: Are the GSEs ready? Are the lenders? How will capital markets respond? Where’s FICO 10T?

In today’s edition of The Scoop, we’ll share details on what exactly the federal government is doing, how much VantageScore 4.0 & FICO 10T would cost lenders/borrowers, & Pulte’s next target. 

Plus, what to make of private equity buying a top mortgage brokerage & a reader question on whether the top LOs on Scotsman Guide are ‘padding’ their stats.

In many ways, Wednesday’s credit report announcement was no surprise at all. The Scoop had already reported that VantageScore’s arrival was likely to be revealed at Wednesday’s joint press conference between the two housing leaders, as was the pending release of historical 10T data & acceptance of VS4 & FICO 10T at HUD.

But in other ways, there were plenty of surprises you’ll want to hear about b/c they speak to how chaotic this process has been.

Pulte told the media that there is already a separate pricing grid for VantageScore 4.0 & that Freddie Mac has already “signed, sold & delivered” $10M (not billion) worth of mortgages w/ VantageScore 4.0 credit scores via an initial operational test.

But several employees of Freddie told The Scoop today they had no idea about it or an active pilot to buy loans w/ VantageScore 4.0 scores from 21 “big lenders.” Lenders said they heard similar comments from their Freddie & Fannie reps & contacts.

Pulte himself noted that the lenders in the pilot weren’t even aware. “You're talking about the big guys, Pennymac, Rocket, etc. They don't even know yet, but they've applied for it, so they'll find out soon that they were approved,” he said at the presser.

(BTW: The $10M was a single bulk pool done as a pricing test.)

But perhaps the most intriguing from the presser was Pulte’s comment that FICO’s CEO Will Lansing called him an hour before the press conference.

“The FICO CEO has offered to — pending details of a FICO direct program — take the FICO score from $10 down to 99 cents w/ the success fee,” Pulte said. “I appreciate the CEO of FICO being willing to look at the 99 cent score. I know it's maybe not necessarily the smart business decision for him today, but I think it's the best business decision for him in the long term.”

Not long after the press conference ended, FICO updated its blog to show that it has proposed a 99 cent fee w/ a $65 funding fee for FICO Direct.

So, yeah. Wow. That’s a doozy. We’ll see if Pulte agrees to that.

In the meantime, there are still questions about LLPAs & how the secondary markets will respond to VantageScore scores. 

MBS buyers likely won’t pay the same price for a pool of VS4 loans as they do for Classic. They just don’t have as much data to rely on. That gap will eventually close, but not for a while. To make up for it, VantageScore will have to be cheaper/better than FICO or early adopters will take pricing hits.

Toward the end of the presser, Pulte said he’s going to be scrutinizing the bureaus (which own VantageScore btw????) next. 

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A reader in Hawaii asks: 

“How is it compliant for top originators to report and/or ‘originate’ loan volume when they’ve never actually spoken to or know the borrower they just ‘originated’ a loan for? None of them speak to borrowers or originate loans at all! They have assistants sign all relevant loan disclosures for them, etc… the loan ‘origination’ metrics are so skewed because they have 50 junior LOs / LOAs report every loan in their individual name.

Everyone / every company does it because they want their guy/company at the top, but how is it legal/compliant?”