An estimated 10.7 million additional people could qualify for mortgages thanks to upcoming changes to lender credit scoring models. Black households in particular are expected to benefit.

On Monday, the Federal Housing Finance Agency (FHFA) announced that it will require mortgage lenders to incorporate credit scores from VantageScore when evaluating potential borrowers. Lenders will also need to transition to a new version of the FICO score for the first time in nearly two decades.

Critically, both the VantageScore and the new FICO score will include information about a borrower’s rent, utility and phone payments.

“Requiring both credit scores, when available, will result in more borrowers that can be evaluated,” said FHFA Director Sandra Thompson in remarks at the Mortgage Bankers Association Annual Convention Monday.

The two scores, she said, should help lenders manage risk “while also responsibly and sustainably expanding access to credit for borrowers with less robust credit histories.”

The FHFA sets the guidelines for loans that can be purchased by Fannie Mae and Freddie Mac — government sponsored enterprises that support the mortgage market by buying loans from lenders. Requirements include a maximum loan size (currently $647,200 across most of the country) and a minimum borrower credit score (620).

Lenders often won’t make loans that fall outside these conditions because they can’t sell them, increasing their risk and cost. The FHFA hopes that the changes it announced will allow more people to qualify. However, FHFA did not set a deadline for the new policies to be implemented, describing it as a “multiyear effort.”

Want more? Read the full article here.
This article was originally published on Money.com on October 26, 2022.