Implementing VantageScore 4.0: A Milestone for Financial Inclusion and Closing the Homeownership Gap
VantageScore®

Published June 20, 2024
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The Federal Housing Finance Agency (FHFA), alongside Fannie Mae and Freddie Mac, has approved the use of VantageScore 4.0 for GSE-funded mortgages. This decision marks a significant step toward financial inclusion, allowing more Americans to achieve the dream of homeownership.

Expanding Mortgage Access

VantageScore 4.0 is known for its predictive performance and inclusivity. Unlike traditional models, it considers alternative data sources like rental and utility payments, which enables it to score a wider range of consumers. The model leverages analytic innovation and machine learning techniques to develop highly accurate scores for tens of millions of consumers unfairly restricted by conventional models. These conventional models, unfortunately, remain in place for mortgage originations while the industry moves forward in implementing VantageScore 4.0.

The process of implementing VantageScore 4.0 in the mortgage market is not only well thought out, but it’s already underway.

Promoting Equity in Homeownership

The adoption of VantageScore 4.0 is particularly impactful for minority communities. According to VantageScore, approximately 33 million more Americans can be scored using this model, with around 10 million having scores of 620 or higher, making them potentially eligible for mortgages. Of these newly scorable individuals, a significant portion—about 16%—are African American or Hispanic. This increased accessibility can help narrow the homeownership gap that has persisted for decades.

Implementation Timeline and Process

The transition to VantageScore 4.0 is being carefully phased in. Key milestones include:

  • Q2 2023: Industry feedback collection.
  • Q3 2023: Publication of the Uniform Loan Delivery Dataset (ULDD) specifications.
  • Q3 2024: Release of historical VantageScore 4.0 credit scores.
  • Q3 2025: Full implementation, including the transition from tri-merge to bi-merge credit reports and the mandatory use of new credit score models.

This timeline ensures a smooth transition for lenders and allows them to adapt their processes accordingly.

Benefits for Lenders and the Economy

For lenders, VantageScore 4.0 provides a more comprehensive view of consumer creditworthiness, reducing the risk of defaults while expanding the pool of eligible borrowers. The model’s use of trended data and machine learning enhances its predictive power, enabling more accurate lending decisions. Economically, this broader access to credit can stimulate the housing market, potentially leading to the origination of up to 2.7 million new mortgages and generating nearly $1 trillion in high-quality loans.

Conclusion

The FHFA’s decision to implement VantageScore 4.0 for GSE-funded mortgages is a pivotal move towards enhancing financial inclusion and reducing the homeownership gap. By leveraging this advanced, inclusive credit scoring model, the mortgage industry can better serve a diverse array of consumers, fostering greater equity and economic growth.

For more information, visit VantageScore’s mortgage industry page.

Related Articles:

The Importance of Credit Score Competition in the Mortgage Market
VantageScore 4.0’s Performance in The Mortgage Market
How VantageScore 4.0 for GSE-Funded Mortgages Drives Financial Inclusion and Helps Close the Homeownership Gap
Preparing for VantageScore 4.0: A Guide for Mortgage Lenders

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