The FHFA’s nod to VantageScore 4.0 — and silence on FICO’s rival 10T model in a recent X post — has reignited a bitter fight over the future of mortgage credit scoring.

A B of A Global Research report dated July 11 on the agency RMBS market pointed to the imprecise language in the post by Pulte.

“There was also no mention of using FICO’s 10T (trended data) credit model, which also incorporates rental payment history as an option in underwriting and thus could similarly expand the eligibility set,” the report said. “Instead, Vantage 4.0 here is presented as the sole alternative.”

Since FICO 10T was not mentioned in the post, it was unclear if it will be introduced at a later date or is completely off the table at FHFA, B of A continued.

That was answered in an update from FHFA issued late on July 15, titled “additional information available.”

In the email issued July 15, the FHFA said “The Enterprises are moving forward with an interim phase in this initiative, in which they will permit lenders to deliver mortgage loans using a credit score generated by either the Classic FICO model or the VantageScore 4.0 model.”

While not mentioning the newest FICO algorithm, in an accompanying FAQ, the regulator added “FICO 10T, which was validated and approved for use by the Enterprises alongside VantageScore 4.0 in 2022, remains an approved credit score model and is planned for future use by the Enterprises. Until then, lenders may choose between Classic FICO or VantageScore 4.0 for loans sold to the Enterprises.”

The delay has concerned FICO, which this week released a white paper that declares the 10T model decisively outperforms VantageScore 4.0. It also claimed the rival score minimally is better than Classic FICO

FICO’s response to the FHFA

FICO does not understand the FHFA decision given that in a head-to-head competition with VantageScore 4.0, its 10T model is clearly the winner, said Julie May, its vice president and general manager of B2B scores.

“The best performing score will provide the best pricing for consumers, and it will provide the best risk assessment for insurers and investors, and it will provide the best outcome for the U.S. taxpayer,” May said in an interview.

FICO is asking FHFA to release the analysis it did as part of this process, where the company has reason to believe it would show FICO 10T to be the winner.

Its own analysis claims FICO 10T “is five times better than VantageScore 4.0, it detects 18% more defaulters where it matters most, that critical score decile, which is 620 used for mortgage origination,” May said. At that level VantageScore only shows 3.4 times over FICO Classic.

A “data truncation” exists with FICO Classic, where the database only allows for loans between 620 and 850 to be analyzed.

VantageScore does not have that truncation issue and May called into doubt on whether it even outperformed Classic FICO.

VantageScore’s response to the FICO claims

These claims about superiority is hard to verify, said Anthony Hutchinson, executive vice president and head of public affairs at VantageScore.

“They’ve not released their 10T data, which we did with Fannie Mae and Freddie Mac,” Hutchinson said. “So I don’t know how they’re able to do the analysis they’ve come up with because we don’t have access to their information.”

He pointed to studies from Bank of America Securities, JPMorgan Chase Securities and Kroll Bond Rating Agency evaluating the GSE data set that was released last July.

“They indicated that VantageScore 4.0 performed better than Classic,” Hutchinson said. “No one has done that analysis for VantageScore versus 10T or even 10T versus the Classic score.”

FICO declares it is the better model

“The industry should understand that FICO score 10T, rather than VantageScore 4.0, can drive significantly more loan approvals for prospective borrowers, because it’s provides enhanced prediction, and additionally, due to this better model performance for mortgage insurers, investors and others, we could see improved mortgage pricing and lower cost for a significant number of borrowers, which could benefit millions Americans,” May said.

Much of Pulte’s comments regarding credit scores have been around the pricing of obtaining a FICO score, as well as lender choice and being consumer friendly.

For one thing, FICO 9, which has not been commonly used in the mortgage industry, already includes rental data, as does 10T and VantageScore 4.0.

“The only reason VantageScore’s model is marketed as being more inclusive is because they have lower credit scoring criteria,” May said. “They will assign scores to individuals who only have one month of credit history, and frankly, that sacrifices the reliability of the mortgage market demands for rigor in a credit score.”

Hutchinson obviously had a different take.

“You’re going to have a number of consumers who are not visible in this space be visible,” Hutchinson said. “It doesn’t mean that all those folks that are visible are going to be conventional, conforming mortgage creditworthy, but a good portion of them are, and that’s going to add a benefit to the mortgage market on the demand side.”

Which is the real monopoly: FICO or VantageScore?

Hutchinson also pointed to the ownership structure of VantageScore, a partnership between Equifax, Experian and TransUnion. The battle goes back to the initial modernization efforts during Pres. Trump’s first term. In the 2018 debate, the FHFA proposed to bar VantageScore from being considered by Fannie Mae and Freddie Mac because of the ties to the bureaus. That was reversed in 2019.

Rather than FICO being the monopoly, it is VantageScore which is more likely to use such power, May commented.

“This is a monopoly of the three credit bureaus, and for anyone to think that it is not, is very short sighted,” she said.

“If anyone thinks with that power, they’re going to see lower pricing, they are highly mistaken,” May continued. “With the increased risk, the lower confidence from an investor perspective, with adverse selection and gaming associated with which score gives me a better outcome, the result of this will be higher cost for everyone.”

But the three companies who own VantageScore compete against one another, Hutchinson said. It does not have any insight into pricing or those companies’ pricing strategies, because “we don’t want to be a party to any anti-competitive practices in the marketplace,” he said.

Other reactions to the FHFA announcement

After the FHFA updated statement was released, Prosperity Now, a consumer group, came out in support of the changes.

“Implementation details will be key,” its emailed statement said. “Any changes to credit scoring frameworks — particularly in a market this complex — require clear coordination, consistent guidance, and transparency to ensure stability for lenders, investors, and borrowers alike.”

From the lender side, Bill Cosgrove, CEO of United Home Mortgage and former Mortgage Bankers Association chairman, is taking a wait-and-see approach.

“Still studying all the options, at this point… will take some time to digest,” Cosgrove said in a statement.

— Maria Volkova contributed reporting to this story