Federal Housing Finance Agency (FHFA) Director Bill Pulte recently announced that Fannie Mae and Freddie Mac will permit lenders to continue to use a credit scoring model based on the “tri-merge” method of accounting for consumer credit reports provided by the nation’s three credit reporting agencies.

“Effective today (July 14), to increase competition to the Credit Score Ecosystem and consistent with President Trump’s landslide mandate to lower costs, Fannie and Freddie will ALLOW lenders to use Vantage 4.0 Score with no current requirement to build new infrastructure (stays Tri Merge),” Pulte wrote in a social media post on X (formerly Twitter).

The National Association of Realtors (NAR) applauded this move to expand credit score models for mortgage underwriting.

“[NAR] has long called for modernizing the credit scoring system to better reflect how today’s consumers manage their finances. We applaud the announcement from FHFA Director Bill Pulte that the GSEs (government-sponsored enterprises) will soon begin accepting VantageScore in addition to other credit scoring models,” NAR Executive Vice President and Chief Advocacy Office Shannon McGahn said in a release.

“This is a major step toward a more accurate and equitable mortgage underwriting process, one that considers timely rent, utility, and telecom payments as indicators of creditworthiness,” McGahn added. “These are real-world factors that show how people pay their bills and should count when determining if someone qualifies for a mortgage.

“Expanding the number of acceptable credit scoring models also fosters competition in credit reporting, which will lower costs, increase accuracy, and ultimately help more qualified Americans achieve homeownership,” she continued.

The FHFA’s announcement represents a reversal of its November 2022 announcement that it would be shifting to a bi-merge credit reporting model, which would require lenders to incorporate credit reports from only two of the three major credit reporting bureaus — Experian, Equifax and Transunion. However, the bi-merge requirement was not included in a 2023 final rule updating the credit scoring framework for the GSEs.

When using the tri-merge scoring model, lenders traditionally use the middle score to determine mortgage eligibility and interest rates. With the bi-merge model, lenders generally indicated they would use the lower of the two scores as the borrower’s representative score.

Many institutions in the financial services industry had been planning on updating their infrastructure in preparation for a transition to a bi-merge scoring model prior to Pulte’s announcement.

The July 8 announcement was a major blow to VantageScore’s largest competitor, Fair Isaac Corp. (FICO), as it effectively ended FICO’s long-standing exclusivity in government-backed mortgage underwriting and sent shares of company’s stock tumbling 15 percent the same day.

VantageScore Chief Strategy Officer and Chief Economist Rikard Bandebo said during this year’s Consumer Bankers Association’s conference the new scoring model was designed to account for the “new normal” in credit scoring.

“The consumer lending space is not what it used to be,” Bandebo said. “We will never return to a pre-pandemic or a pandemic environment. We have to be moving toward the future of lending. We’ve been listening to our customers – regulators, industry experts, lenders – and they’ve been telling us there is a need for a new credit risk model to account for this ‘new normal’ that the consumer lending space is in, and we listened.”