On December 9, 2024, Urban Institute published a misleading and biased research “analysis” on the differences between the current credit score model (Classic FICO) and the newly Federal Housing Finance Agency (FHFA) mandated VantageScore 4.0 credit scoring model in mortgage lending. The FHFA mandated the use of the VantageScore 4.0 credit score model for Fannie Mae and Freddie Mac mortgage loans pursuant to the 2018 Credit Score Competition Act.
The analysis published by Urban Institute is quantitatively flawed and should not be relied upon by industry participants for the following reasons:
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Urban Institute Research Not Independent and Indirectly Financed by FICO: The report was financed by the “Housing Finance Innovation Forum.” Urban Institute failed to disclose that FICO is one of the paying members of the organization that financed this research. VantageScore is not. Not only does this present a serious conflict of interest, but it also falls short of satisfying the “highest standards of integrity and quality” and the “values of independence, rigor, and transparency” with which the Urban Institute purports to operate.
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VantageScore 4.0 Offers “Better” Predictive Performance: The research report does not substantiate its findings that VantageScore is only “marginally better” than Classic FICO. VantageScore was mandated for use in mortgage lending by the FHFA because it is more accurate, more inclusive, and promotes enhanced safety and soundness compared to Classic FICO. Independent research by the two of the largest banks in the U.S. found that VantageScore is the “better” credit score for mortgage.
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VantageScore 4.0 Outperforms in Lower Scoring Bands: Since the majority of mortgage delinquencies occur in the lower VantageScore credit score ranges, VantageScore 4.0’s clear and superior outperformance in lower scoring bands is quite material and quite substantive, yet Urban Institute fails to make this advantage clear in its analysis.
This year, many of the largest government-sponsored mortgage enterprises (“GSEs”) have already adopted VantageScore 4.0 with immediate effect. These GSEs include the Veterans Administration, Federal Home Loan Bank of New York, Federal Home Loan Bank of Chicago, and Federal Home Loan Bank of San Francisco. Fannie Mae and Freddie Mac will begin requiring VantageScore 4.0 in 2025.
VantageScore calls on Urban Institute to immediately withdraw its research and urges all industry participants not to rely on this analysis.
