A new analysis of loan-level data from both Fannie Mae and Freddie Mac reveals that VantageScore 4.0 consistently better rank-orders mortgage borrower risk and also better separates risk than FICO. The analysis published by independent research firm Prosperity Now, titled “From Scores to Signals: Understanding Risk Classification in a Multi-Score Mortgage Market,” evaluates the performance of VantageScore 4.0 against the incumbent credit score across a ten-year period, including the COVID-19 stress environment, with a focus on how each model aligns with observed loan outcomes and real-world market conditions.
The results are clear: VantageScore 4.0 delivers a more accurate view of borrower risk, especially during stress periods,” said Dr. Rikard Bandebo, EVP, Chief Strategy Officer and Chief Economist at VantageScore. “The study also finds that there is no ‘gaming’ risk added with the two-score system, which will be a massive benefit for investors and the GSEs.
Key study findings include:
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VANTAGESCORE 4.0 DELIVERS SUPERIOR RISK DIFFERENTIATION, ESPECIALLY IN TIMES OF STRESS: VantageScore 4.0 demonstrates stronger separation between higher- and lower-risk borrowers, with approximately 41% greater differentiation at the decile level under stress conditions. This enhanced precision is particularly evident at the top of the score distribution, where the lowest-risk borrowers show meaningfully better post-forbearance performance.
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GAMING IS OFF THE CARDS AS DIFFERENCE IN SCORES IS ONE SIDED: The analysis found that when mortgage loans had a high FICO score and VantageScore 4.0 scored them low, VantageScore correctly identified the loans as much riskier. When mortgage loans had a high VantageScore 4.0 and a low FICO score, they had the same risk on average. Therefore, mortgage credit scoring gaming is a myth, as VantageScore 4.0 consistently identifies mortgage credit risk more accurately.
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VANTAGESCORE 4.0 BETTER PREDICTS REAL-WORLD DEFAULT OUTCOMES, INCLUDING POST-FORBEARANCE PERFORMANCE: The analysis shows that VantageScore 4.0 more effectively aligns borrower scores with observed loan performance, particularly in economic periods where borrower risk may be temporarily masked. During the COVID-19 period, while forbearance programs suppressed default reporting, VantageScore 4.0 was much more predictive of whether loans in forbearance would subsequently default when payments resumed.
To download a full copy of the Prosperity Now study, click the button below or visit Prosperity Now website.
Mortgage lenders are encouraged to explore the benefits of VantageScore 4.0 by visiting the VantageScore Mortgage Resource Center. Lenders and partners interested in adopting VantageScore models or participating in pilot programs can contact their credit bureau representatives:
Equifax: mortgage_inquiries@equifax.com
Experian: mortgages@experian.com
TransUnion: TU_Mortgage@transunion.com
