A recent analysis by Milliman, commissioned by FICO, comparing the VantageScore 4.0 credit score to FICO 10T misrepresents the reality of the mortgage opportunity. The analysis misses the main point of the American mortgage finance system by completely ignoring the millions of new creditworthy consumers that VantageScore 4.0 identifies. The most compelling opportunity in mortgage today is not a myopic focus on an arcane fit statistic within a restricted historical borrower dataset. The real opportunity is to use new technology and more data to enable greater access to mortgages for creditworthy consumers. That is what VantageScore 4.0 delivers.
The objective of the 2018 Credit Score Competition Act was to a) increase access to mortgages for creditworthy borrowers and b) promote competition in mortgage credit scoring. FICO 10T accomplishes neither of these objectives. Milliman’s analysis ignores both objectives by failing to acknowledge millions of new creditworthy mortgage consumers that VantageScore 4.0 identifies and that FICO 10T completely misses. Milliman’s analysis also misses the fact that credit competition is the settled law and instead promotes the false theory that competition introduces “gaming” and hence that only one monopoly score should be used for mortgage finance.
A superior, data-driven path forward exists. It is the ability to responsibly expand the addressable market by pinpointing millions of creditworthy consumers who remain invisible to outdated credit scoring methodologies such as FICO Classic and FICO 10T.
1. VantageScore 4.0 is the only mortgage-approved credit score that expands the universe of creditworthy mortgage borrowers.
VantageScore 4.0 stands apart as the only approved mortgage credit score that extends the evaluation beyond the obsolete methods used by FICO 10T. A recent VantageScore analysis estimates that VantageScore 4.0 can score approximately 33 million additional U.S. adults who are not typically captured by FICO Classic or FICO 10T.
Within that expanded population, VantageScore 4.0 identifies nearly 5 million additional creditworthy consumers who can gain access to the mortgage market, representing a mortgage origination opportunity of up to $1 trillion.
VantageScore 4.0 enables lenders to responsibly reach borrowers who are new to credit, have recently inactive credit files, or lack traditional credit tradelines. A majority of these consumers are not automatically higher risk because many demonstrate income stability, prior credit experience, or early credit behaviors that demonstrate a pathway into mainstream mortgage readiness.
2. Incomplete By Design: Milliman’s Analysis Excludes 5 million Creditworthy Mortgage Consumers.
The FICO-commissioned Milliman study evaluates performance using Freddie Mac and Fannie Mae loan-level performance data for mortgages that were already originated and approved under the legacy mortgage credit infrastructure. This data contains only the scores of borrowers who had a Classic FICO score and met underwriting requirements at the time of mortgage origination. That data completely excludes approximately 5 million creditworthy consumers that VantageScore 4.0 pinpoints but that FICO 10T ignores. That makes the study findings misleading, especially for lenders evaluating the full mortgage opportunity. Because FICO Classic and FICO 10T leave large portions of the mortgage-eligible population unscored, many otherwise creditworthy consumers remain invisible. Put another way, the Milliman study does not reflect a meaningful comparison between the FICO models and VantageScore 4.0.
3. VantageScore 4.0 is the only mortgage-approved credit score designed to support responsible portfolio growth for lenders and expanded homeownership access for borrowers.
The broader question is not which model performs within a constrained historical sample, but rather which model gives lenders a more complete view of today’s addressable mortgage consumer population. The answer to that question is VantageScore 4.0. VantageScore 4.0’s ability to score consumers overlooked by legacy models such as FICO Classic and FICO 10T makes the analysis of market expansion central to evaluating which credit score mortgage lenders should use.
In a housing market where affordability, access, and borrower growth are critical, the ability to see new mortgage consumers is a significant competitive advantage and the only credit scoring model that offers that competitive advantage is VantageScore 4.0. VantageScore 4.0 offers lenders the opportunity to responsibly identify more qualified borrowers by using modern, data driven, and predictive scoring.
By Dr. Andrada Pacheco, EVP and Chief Data Scientist
