As Fannie Mae and Freddie Mac have not provided their schedule or intentions for approving the FICO 08-based credit scores
Eddie Johansson, president of Credit Security Group, a credit analysis and rescoring firm, is of the opinion that the upgraded FICO 08 credit scoring model will increase the credit scores of a significant segment of borrowers. However, he believes that as Fannie Mae and Freddie Mac have not provided their schedule or intentions for approving the FICO 08-based credit scores available from two major credit bureaus, the model is not going to help home buyers.
Reportedly, credit scores help lenders determine whether a mortgage loan is approved and the interest rate offered. In general, the higher the score, the easier it is to get a mortgage loan and the lower the interest rate. Fannie Mae and Freddie Mac own or guarantee almost 31 million home loans worth about $5.4 trillion, which makes it all the more important that they approve the new score model.
Speaking to 150 bank executives at the independent bankers association of Texas leadership conference in San Antonio and to banking educators attending the financial literacy summit at the Federal Reserve Bank of Dallas, Mr. Johansson said: If it’s implemented as expected, it is a great opportunity to boost the housing market. When Fannie and Freddie approve it, it has arrived – but not until then.
It takes into account more of the borrower’s history and penalizes them less for a single unusual event. It also has more score card levels, allowing finer adjustment of credit scores, he added.