Fannie Mae and Freddie Mac Will Price Mortgages the Same Whether Lenders Use FICO or VantageScore

A change in how mortgage fees are set could shake up which credit score matters when you apply for a home loan, and it is worth understanding before you start shopping for a mortgage.

The agency that oversees Fannie Mae and Freddie Mac announced the change on Monday, September 28. Bill Pulte, director of the Federal Housing Finance Agency, said the two mortgage giants will move to a single pricing grid that treats VantageScore 4.0 credit scores the same way as Classic FICO scores.

“Instead of two separate pricing grids, which makes zero sense, Fannie and Freddie are hereby moving to ONE PRICING GRID with VantageScore joining the existing FICO Classic pricing grid,” Pulte wrote in a social media post.

What Fannie Mae and Freddie Mac do

Fannie Mae and Freddie Mac do not lend money to home buyers directly. Instead, they buy mortgages from banks and other lenders, bundle many of them together and sell them to investors. That process replenishes lenders’ cash so they can make more loans. According to Yahoo Finance, the two companies support about 70% of the U.S. mortgage market.

Because they buy so many loans, the standards Fannie and Freddie set effectively become the rules for most conventional mortgages. Lenders want their loans to be eligible for purchase, so they follow the companies’ guidelines on credit scores, down payments, debt levels and pricing. When those guidelines change, the effect ripples out to millions of borrowers.

What a pricing grid is

When you get a mortgage that Fannie or Freddie will buy, your lender uses a chart, called a pricing grid, to figure out certain upfront fees. These fees are known as loan-level price adjustments, or LLPAs. They depend on factors such as your credit score and the size of your down payment relative to the home’s value. A lower score or a smaller down payment generally means higher fees, which can show up either as a higher interest rate or as extra closing costs.

Most borrowers never see the grid itself. They simply see the result: the rate and fees on their loan estimate. But the grid is one of the main reasons two people with different credit profiles get different offers on the same day.

What changed

Lenders approved by Fannie and Freddie can already use either Classic FICO or VantageScore 4.0 for eligible conventional loans, according to HousingWire. However, HousingWire reported that VantageScore 4.0 scores were subject to a 20-point downward adjustment to account for differences between the two scoring models. A 740 VantageScore, in effect, was treated like a 720 for pricing. The new single grid removes that difference, so the same number is priced the same way regardless of which model produced it.

Several details are still unclear or limited. According to Bloomberg Law and Investing.com, the FHFA did not say when the new single grid will take effect. HousingWire reported that Classic FICO is still required for manually underwritten loans, which are applications reviewed by a person rather than an automated system. And the projected savings are an estimate: Tony Hutchinson of VantageScore told HousingWire the company expects “nearly $1 billion in savings in the next 12 months alone.” That is the company’s own projection, not an official figure.

Why investors reacted

The news hit shares of Fair Isaac, the company behind FICO scores. Its stock fell more than 20% shortly after the market opened on Tuesday, according to Yahoo Finance, and HousingWire reported the drop topped 26% by Tuesday afternoon. Mortgage pricing has long been one of FICO’s most important markets, so investors read the change as a threat to its dominance.

VantageScore was created by the three major credit bureaus, Equifax, Experian and TransUnion. Rocket Mortgage CEO Jay Bray also said his company would adopt VantageScore, according to Yahoo Finance. Supporters argue that more competition between score makers could lower costs and help more people qualify, partly because VantageScore can generate scores for some consumers with thin credit files. It is too early to know how much, if anything, individual borrowers will actually save.

Why you have more than one credit score

Many people are surprised to learn they don’t have a single credit score. FICO and VantageScore each use their own formulas, and both companies publish several versions. The same credit report can produce noticeably different numbers depending on which model and version is used. That is why the score in your banking app may not match the one a lender pulls.

Both models reward the same core behavior, though. Paying every bill on time, keeping credit card balances low compared with your limits, avoiding unnecessary new applications and keeping older accounts open all tend to raise scores under either system.

What this means for your wallet

If you are planning to buy a home or refinance, it is worth asking each lender which credit score it uses and how it will be priced once the new rules take effect. As lenders adopt the change, the answer may vary from one company to the next, and that can affect the offers you receive.

Check your credit reports well before you apply. You can get free credit reports from all three bureaus at AnnualCreditReport.com and dispute any errors you find. Fixing a mistake, such as an account that isn’t yours or a late payment reported in error, can raise your score under every model.

Most importantly, focus on the fundamentals rather than the scoring brand. A strong payment history and low credit utilization will help you regardless of which grid your lender uses. The pricing change may shave costs at the margins, but the habits that build good credit are what move you into the best pricing tiers in the first place.