Concepcion Guerrero: (00:04)
Welcome to Mortgage Connects by MGIC, bringing you the latest insights from top mortgage professionals around the industry. I'm your host, Concepcion Guerrero, and joining me today is MGIC's customer trainer, Jeff Platfoot. Today's topic is one that I feel will be of interest to many of our listeners because it pertains to some credit changes that are on the horizon. Jeff, what can you tell us about this?
Jeff Platfoot: (00:28)
Thanks Conception. Uh, you know, as we know, especially working in the mortgage industry for the last, give or take 20 years, the agencies, Fanny and Freddy, have used what we call a classic FCO model to provide us credit scores. And since, uh, 2014, the FHFA, the Federal Housing Finance Agency, uh, was tasked or did task the agencies to begin an effort, uh, to put together and modernize, uh, credit score model requirements. And then in 2018, Congress actually put forth a requirement that the FHFA create that process for validating and approving these models that are going to be used in the future. So just recently on October 24th, 2022, uh, the FHFA announced the, the approval and the next steps of what's called the FCO-10T and the Vanguard 4.0 Credit Score Models. And these credit score models are going to be used by both agencies, Fanny and Freddy.
Jeff Platfoot: (01:46)
And after a multi-year transition period, lenders will be in the future required to deliver all of their loans to the agencies. With these two models being used, the idea behind this is, and the result of these, this lengthy time period to put all of this information together, is to try to provide more accuracy, inclusiveness, and then also safety measures to put in place. So when we mention the accuracy piece of the credit scores, it's to ensure that uh, all models meet the necessary standards to treat borrowers fairly to protect their safety soundness mortgage markets by the agencies. So the FCO-10T and the Vantage Score 4.0 will meet and do meet those standards. It's also going to create a more inclusive credit score. There's been a lot of talk about how the agencies, Fannie Mae and Freddie Mac, have put forth programs, have put together modifications for their automated underwriting systems to be able to include credit and scores centered around providing information with regards to rental history, utility history, uh, cell phone, phone payments, those types of things, etc.
Jeff Platfoot: (03:12)
All of that can then be included where applicable and if it's available in this new, uh, credit score model. And the safety and soundness piece is put in place to try to provide additional accuracy and, uh, innovative credit score models as well. Also, in addition to this, on October 24th, uh, the FHFA also announced that the agencies will no longer be required to obtain three credit reports. They'll now only be required to obtain two credit reports from the national repositories. So two scores versus three scores. And the idea behind that is to help and enhance reduced costs, uh, encourage innovation and also additional risk to the agencies will be mitigated with that. And these changes that have been put in place, been work, been worked on for the last eight years or so through this future and next year these scores will be coming out, these new models will be coming out, and additional tools that create that accuracy hopefully are going to, uh, show and prove that they've been just great enhancements. So we thought for today this would be great to be able to share, sort of expound upon this announcement that just recently came out and to make everybody aware of what's in the future and what's on the horizon. So with that, uh, I'll turn it back over to you Conception.
Concepcion Guerrero: (04:51)
Thank you so much, Jeff. It's always a pleasure having you on our podcast. And thank you for the update there. And thank you all for listening. For the latest industry insights, subscribe to Mortgage Connects on Apple, Stitcher, Google Podcast, Spotify, Amazon Music, or go to mortgageconnects.com.