New VantageScore 4.0 Credit Report Uses Rent & Utility Payments; Woohoo Or Uh Oh?

The Federal Housing Finance Agency (the agency that regulates Fannie and Freddie) Director, Bill Pulte, posted this on X yesterday: “My ORDER today … will allow for Americans to use their RENT [and utility payments] to qualify for a mortgage. Credit history will no longer just include credit cards and loans. This is HUGE.”

JVM Lending will, of course, be all over this, but is it a good thing? Yes, for about ten minutes… More “uh oh” than “woohoo.”

SIDEBAR: This Kobeissi post tells us that President Trump is calling for a 300-basis-point (3%) cut to the Fed Funds Rate.

Kobeissi then explains that such a cut will result in hundreds of billions of interest savings for the government, a huge surge in stock and gold prices, and a corresponding 3% drop in mortgage rates to 4% or less. Sigh… A) Gold prices surging to “$5,000” implies that investors are concerned about inflation, so mortgage rates would likely not go down in that scenario. B) The Fed does not control long-term rates – so there is no certainty that mortgage rates will fall. C) Nobody knows what will happen if the Fed cuts that much.

VantageScore 4.0

Mr. Pulte is referring to the use of the new VantageScore 4.0. It is a credit score that accounts for rent and utility payments along with traditional credit, while ignoring medical debt and paid collections.

We can now use the VantageScore to qualify borrowers for Fannie Mae and Freddie Mac financing. And this will definitely open up homebuying to a lot more people, especially if they have medical debt or limited credit histories.

FHA has allowed the use of this score for several years, and we’ve always been allowed to use “alternative credit” (like rent and utility payments) for “manual underwrites” (that don’t rely on automated underwriters at all and that have more restrictive guidelines).

The new VantageScore can, however, be used with automated underwriting systems and with less restrictive guidelines.

The Good, the Bad, and the Ugly

1. GOOD – MORE HOMEBUYING: This much “thinner” credit profile will open up homebuying to a lot more people – which means more homeownership and more business for all of us.
2. BAD – WE NEED FATTER PROFILES, NOT THINNER: As I explained in this blog – Algorithm Lending Is Returning, Thankfully – consumer lenders use algorithms with 2,500 data points – and it is far more accurate and effective than old-fashioned underwriting with only a few data points.
3. BAD – WE SAW THIS PRIOR TO 2008, AND IT DID NOT GO WELL: Subprime lenders famously used “thinner credit profiles” with fewer data points and it did not go well because they did so while also offering small or no down payments. So, using the VantageScore with low-down payment (3% to 5%) options seems like a recipe for disaster … unless of course home values rise and interest rates fall forever – like the Bush Administration assured us would happen (note: it didn’t).
4. UGLY – RESTRICTING HOUSING SUPPLY WHILE SUBSIDIZING BUYING: Much of America restricts housing supply with green mandates, enormous permitting and development fees, and restrictive zoning. While at the same time, the government subsidizes housing with down payment assistance programs, below market rates, and Fannie, Freddie, and FHA loan guarantees for loans that no bank would ever make without such a guarantee. These supply restrictions, in conjunction with the subsidies, artificially push prices higher and higher – making home buying that much harder for the next crop of homebuyers.