Catching up to the alternative-data trend across other consumer loan categories, government-sponsored enterprises Fannie Mae and Freddie Mac are allowing more flexibility in credit scoring by participating mortgage lenders.
The Federal Housing Finance Agency, the GSEs’ overseer, cleared the way last July for “lender choice” between the Classic FICO model, previously the only option, and VantageScore 4.0 (VS4). The new approach “will introduce more robust competition in credit scoring while the enterprises continue to work towards full implementation of modernized credit scoring and credit reporting,” the FHFA said.
By November, both Fannie Mae and Freddie Mac had moved to loosen their minimum FICO 620 credit score requirement. Fannie’s Desktop Underwriter (DU), for one, “will use our proprietary credit risk assessment to determine a minimum credit risk threshold when evaluating loan eligibility for sale to Fannie Mae.” Replacing the credit score minimum “does not affect our ability to assess credit risk and ensures that the DU risk recommendation is agnostic of third-party credit scores.”
The secondary mortgage market agencies, which have been under federal conservatorship since the 2008 financial crisis and are being considered for a return to public shareholder ownership, were empowered by the Credit Score Competition Act of 2018, a bipartisan law that required the FHFA to establish a process for validating more advanced credit scoring models.
Nick Maynard, Juniper Research
VS4 and Fair Isaac’s FICO 10T were validated with the intent to enable lenders to more accurately assess borrowers with thin credit histories or below-standard Classic FICO scores that do not accurately reflect their ability to make mortgage payments.
Auto, personal, and credit card lenders set a progressive standard for more reliance on alternative data, noted Juniper Research analyst Nick Maynard, The result is “less reliance on a single, blunt instrument” for credit scoring.
VS4 and FICO 10T – the latter was validated by the FHFA in 2022 but its historical data was insufficient to be approved for use last July – potentially widen borrower-data collection to include rent, utility and telecom payments and the increasingly popular buy-now-pay-later (BNPL) retail credits. Maynard pointed out that FICO 10T uses a full 24 months of trended data; VS4 has shorter windows due to its accommodation of thin files, and it excludes some medical records that 10T does not.
Julie May of FICO
In a December 1 FICO blog, vice president Julie May said that her company had agreed with the FHFA on terms and conditions to release historical 10T data associated with the GSEs’ single-family loan-level datasets.
The agreement “represents a key step in making FICO Score 10T historical datasets broadly accessible to market participants,” said May, who is general manager, scores. The three major credit bureaus were soon to deliver 10T data to the GSEs. “We expect that the GSEs will conduct their own validation of the data and make FICO Score 10T historical datasets,” she continued, “which will be updated to also include more recent data through 2025, accessible to market participants.
“Lenders, investors, third-party risk modelers, and other stakeholders will be able to access these historical files through each GSE’s website, where users will be prompted to accept updated terms and conditions prior to data retrieval.”
VantageScore Solutions has been a proponent of alternative data since its founding in 2006 by the credit bureaus Equifax, Experian and TransUnion. VantageScore head of public affairs Anthony Hutchinson said the firm provided 42 billion scores in 2024, up from 23 billion the year before.
VantageScore users include eight of the top 10 U.S. banks, nonbanks such as Toyota Motor Credit as well as subprime and personal loan providers. “The one place we haven’t been has been mortgages.”.
Admitting VantageScore 4.0 creates a $1 trillion incremental mortgage lending opportunity, according to a July 2025 VantageScore webinar.
Jupiter’s Maynard said usage of alternative scoring varies: Fintechs such as Prosper, a direct lender, and Upstart, which sells through banks and credit unions, tend to be further on the cutting edge than are traditional banks.
The GSEs’ opening represents a seal of approval “for those folks who are continuing to innovate at a faster pace than the mortgage industry,” said Nikki Cross, head of data science consulting at Nova Credit, whose Credit Passport facilitates cross-border credit assessments. Other Nova products such as Cash Atlas, Income Navigator and Eligibility Compass let consumers grant permission to lenders, property managers and others to access their checking, savings and other account data to get a more comprehensive picture of their finances.
“In a world where households are living paycheck to paycheck, it’s huge to understand the disposable income and commitments the consumer has,” Cross stated. She did not say whether any Nova Credit products are used in mortgage lending.
“The technology by this time is mature, and there are some markets where [use of alternative credit data] is well developed,” Maynard commented. “But in the U.S., there’s still a lot of progress to be made in terms of broadening horizons beyond just the FICO score, and that’s something institutions are exploring at the moment.”
Aggregating “lots of different data sources,” he added, is evolving to include sources of alternative data “and then digesting it in a way that’s effective for each institution.”