A significant regulatory shift is underway for Fannie Mae, the government-sponsored mortgage enterprise. The head of the Federal Housing Finance Agency (FHFA) has announced plans to approve the FICO 10T credit scoring model for mortgage loans processed by both Fannie Mae and Freddie Mac. This move has the potential to fundamentally reshape competition within the credit scoring industry.
Investor Implications and Market Reaction
These regulatory advancements are poised to sustainably alter Fannie Mae’s operations and influence the broader mortgage sector. For investors, the market now awaits a formal implementation announcement for FICO 10T following the indication that an agreement is imminent.
From a technical perspective, a research firm downgraded Fannie Mae’s stock to a “sell” rating on Monday, pointing to mixed signals for its near-term trajectory. Market participants must now evaluate whether these regulatory improvements can counterbalance the stock’s recent price declines.
A Dual-Score Framework Takes Shape
FHFA Director Bill Pulte confirmed via a social media post that the agency is “nearing an agreement” to implement FICO 10T. This would establish a dual scoring framework for the mortgage giants when combined with the earlier approval of VantageScore 4.0 this year. Pulte emphasized that both models would benefit consumers and reinforce the safety and soundness of the housing finance system.
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The FICO 10T model incorporates trended credit data, enabling a more dynamic assessment of borrower creditworthiness over time. Despite receiving validation for use at the enterprises back in 2022, its formal rollout had been pending until now.
A Departure from Traditional Scoring
The prospective adoption of a dual-score system represents a radical departure from the decades-long reliance on the traditional FICO model. This transition was initiated in July with the announcement that lenders would be permitted to use VantageScore 4.0.
Coinciding with these developments, Fannie Mae eliminated the minimum 620 credit score requirement from its Desktop Underwriter system for new loan applications in early November. The FHFA Director characterized this adjustment as a “procedural matter,” necessary to facilitate the effective use of multiple credit scoring models.
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