WSJ: Fannie, Freddie to Consider Alternatives to FICO scores
WASHINGTON—One firm’s dominance over the credit scores used to vet many U.S. mortgages is getting a shake-up.
Fannie Mae FNMA +3.56% and Freddie Mac , two mortgage-finance firms that back nearly half of U.S. mortgages, will have to consider credit-score alternatives to Fair Isaac Corp.FICO -1.65% ’s FICO score when determining a mortgage applicant’s creditworthiness, under a new rule completed on Tuesday by the mortgage-finance giants’ federal overseer.
The move by the Federal Housing Finance Agency is seen as a win for VantageScore, a credit-score system by VantageScore Solutions LLC, which is owned by the three large credit-reporting firms: Equifax Inc., EFX +2.22% TransUnion and Experian EXPGY -0.71%PLC.
Tuesday’s rule sets up a four-phase process for Fannie and Freddie to validate and approve credit score models. The measure is required by a regulatory rollback signed into law last year.
—AnnaMaria Andriotis contributed to this article.
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Fannie Mae and Freddie Mac back about half of new mortgages in the U.S. Now, talks are heating up about reshaping or shrinking the two companies, a move that could impact millions of Americans. Photo: Heather Seidel/The Wall Street Journal