New Credit Scoring Models Would Be Better for Homebuyers, If Anyone Would Adopt Them

NAR Researcher Ken Fears joined finance expert Ilyce Glink for an interview about alternative credit scoring models and how they can help millions more Americans obtain mortgage credit, but only if the GSEs and other mortgage financiers adopt the new models.

In the clip, Fears recaps the ideas exchanged among diverse housing policy stakeholders at a credit symposium hosted by NAR, the Asian Real Estate Association of America and the National Association of Hispanic Real Estate Professionals on April 1.

Unlike traditional credit scoring methods that mostly calculate prior credit payments (Macy’s, Banana Republic, CarMax), newer credit scoring models redefine what it means to be creditworthy by factoring in timely payments of rent,utility and cell phone bills. Under these models, literally tens of millions more Americans would be considered “scorable” and about five million people would see their scores move from near-prime to prime.

The catch is that most mortgage lenders as well as Fannie, Freddie, and FHA are still using older models.

NAR President Chris Polychron explained last week, “If lenders and the government-sponsored enterprises were to adopt alternative credit scoring methods, such as FICO 9 and VantageScore 3.0, they could expand access to mortgage credit without dramatically increasing risk in the housing market.”