Mortgage

FHLBank Chicago adopts VantageScore 4.0 model

The bank said that the transition will increase opportunities for underserved borrowers

The Federal Home Loan Bank of Chicago (FHLBank Chicago) and consumer credit scoring system VantageScore announced on Tuesday that the bank is now accepting mortgage collateral using VantageScore 4.0, an updated version of the scoring system using trended credit bureau data.

“[M]ember financial institutions can now pledge mortgage collateral using VantageScore credit scores as an alternative to the Classic FICO credit score model,” the announcement said. “By considering rental payments and other consumer credit data in its scoring algorithms that are not included in traditional scoring models, VantageScore provides an innovative solution aimed at expanding access to support sustainable homeownership.”

VantageScore claims that the 4.0 system scores 33 million more people than more traditional credit scoring models, including 2.4 million more people served by the FHLBank Chicago district encompassing Illinois and Wisconsin.

This transition is said to build on other recent efforts by FHLBank Chicago to expand the availability of mortgage financing.

This year, the bank “increased the maximum per member limit available for its Downpayment Plus (DPP) grant program, a downpayment assistance program, to $1 million per member,” the bank said. It also “increased the maximum grant per project to $2 million through its Affordable Housing Program (AHP) General Fund, forgivable grants that subsidize the acquisition, new construction, and rehabilitation of affordable rental or owner-occupied housing” among other initiatives.

In late 2022, the Federal Housing Finance Agency (FHFA) announced that it would replace the Classic FICO credit model — which Fannie Mae and Freddie Mac have relied on for roughly 20 years — with new models (FICO 10T and VantageScore 4.0) that use trended credit bureau data.

Since then, there have been a number of delays and challenges in completing these changes. Mortgage companies, trade groups and lawmakers have increasingly scrutinized the implementation timeline.

In May, VantageScore released a pilot of its latest credit-scoring model, VantageScore 4 Plus, for banks, fintechs and government lenders.

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