[David] Anyway, Alice, let’s get to you over … You, we went a little bit longer on that whole topic, but it was an important topic, and I wanna get into a couple other things. But let’s get your report on the regulatory legislative update.
[Alice] Sure. Hello everyone. So today I’m just gonna give you a quick update because it’s It’s news, but then at the same time it’s non-news. So Fannie and Freddie and FHA, FA- FHFA have announced the loan level price matrixes for the Vantage score. So we now get to actually see the pricing. The lender letter and announcements have said all lenders are able to use Vantage score. Now you don’t need… It’s not just a pilot, and everybody’s going that’s just great. I don’t have that set up in my computer.” And they can list all their vendors and everybody else who isn’t quite set up yet to be able to actually implement this. But that aside, now that we see the major pricing differences between the two, so for our listeners we have loan level pricing adjustments, and these main grids are based on a combination of the credit score and the loan to value. And essentially, that grid, when you look at the numbers within this, pretty extensive grid the LLP matrix considers everything from the highest scores over 800 and less than a 30% loan to value, which would be 70% equity, all the way up to, I have less than 5% down and I’ve got a credit score below 639 or 659. So it’s a pretty extensive grid with just those two factors with… and whether you’re a 30 or 15-year loan. There are many other pricing adjustments, but in just this grid related to the source of the score there is a 20-point difference in the score itself. So what would be the price for a 660 loan with 10% down, a 660 credit score in the classic FICO and 10% down, versus a 660 Vantage score 4.0 which is, our Vantage the one that has just recently come out. 660 is gonna be, in a classic, is gonna be the same as a 680 in the Vantage. So you have to have essentially 20 points better in the Vantage model than you do in the FICO. Now, for those of you who still are trying to learn the two, you can all certainly use your various AI resources to have them compare for you the difference between Advantage and the classic FICO. The FICO 10T, which is supposed to now include some credit, trended credit data and some other components that will make it a little more similar to that forward-looking trend, that particular score is still not available through Fannie and Freddie yet. It should be, in, yeah, upcoming soon. But as of today, it’s just Vantage against classic FICO. So take a look at those. Understand your credit score. So I would say loan officers getting really good at helping people with their credit scores, really understanding if Vantage has a place for you in your market. It really will be based on market. Some loan officers are in that more credit-challenged market. Others stay far away from it and get loans with the country clubs. Although, wait, hey, that doesn’t necessarily mean their credit’s all clean over there either. Depending on your markets, make sure the differences between the two and the pricing is out. The other thing that happened is for our private mortgage insurance companies. So the agencies a couple of weeks ago changed that they need to increase their assets, capital requirements based on the rate at which they- Yeah, good point … are taking Vantage scores. So there hasn’t necessarily been a change in the premium being passed on to the borrower yet, but that is definitely something we’ll be watching for. That’s a little more competitive. Not sure if the MI companies are actually gonna go that way. But I did see a really, my last comment here. So on the FHFA website, it says what policies are being updated by FHFA regarding credit scores, and I found this sentence, this little piece in this sentence that surprised me. So it says, “Now FHFA is directing the enterprise to permit lenders,” and in a couple parentheses here it says, “on an interim basis.” Interim, interesting. To, to. Yeah. Interesting. I thought, so are they viewing this as a test to see will lenders, will it get the adoption? Are they leaving themselves an out there in the event that over any kind of future long-term performance there become issues? But I think this is a big technology hurdle. I’m thinking of all the lenders I worked with, and you have so many things touching the credit score boxes in your loan origination system, in all your reporting, in everything you’re doing every day. To now add an additional credit score model is a big lift. That’s- Is it? Yeah … well-explanatory. Yeah. So anyway. Yeah, I think- That’s the latest. We now have pricing. It, pricing will not be the same if you use a VantageScore.
[David] Yeah Great point. Bill, what did you say we were talking before we went live on the start recording, you said, “And Pulte walks in the room and the first group of people come in disagreeing with him, and he says, ‘Oh, by the way, you disagree with me, you’re all fired.'” Yeah. Okay, the next group coming in, what do you have to say about this?
[Bill] Yeah, this has been talked about for years, and- Yeah … no one has really solved , the pieces that Alice was just getting into with the amount of work to implement this. I think this is a let’s force it out there and the industry peer pressure is gonna force people into it. And related to this, now they’re also still talking about for certain high credit quality borrowers allowing just a single bureau, right? And all of this, and especially that one, I think there’s a massive unintended consequence that’s not being addressed, and it all comes down to the really narrow 20-point pricing bands. Yeah. When you, with any- Good point … of this that introduces variability, customers are gonna start- To double app, triple app, right? Yeah. Because a little bit of a difference in the score is going to impact their pricing, and therefore, especially with online applications and the whole application process, has become so much more efficient, apply with one lender with the Vantage score and go to another one with the FICO and see which one comes out better
[Alice] Yeah and that’s even a toss-up question for a lender. Am I gonna offer the opportunity for the borrower to pick one or the other, or am I going to- Yeah … look at both and then proceed? And especially- Great point … when we’re sitting on these price psychological price point changes. Some of these it’s very meaningful, an eighth and a half point.
[Bill] Yeah. It’s- every originator has seen folks walk for less than some of the price differences between these two. So that to me is the big unintended consequence of are you gonna drive down cost or are you gonna increase cost? Because fallout’s gonna increase dramatically as people start, double-apping.
[David] The, the cost of double-apping, triple-apping, you know what that does to companies. It’s just horrific. through rate falls in the toilet. So many of your scores. There’s just this, this cascading- And- … domino effect that has a result of that,
[Bill] And so let- let’s, go back to Alan’s example where if I have to sit with a loan officer for an hour plus going through and filling out an application, I’m looking at once and done. If I can apply with, Alan and with Alice and each one takes five minutes- Yeah … why not?
[David] Why not? What’s the consumer have to lose? The industry takes the-
[Alice] Yeah, if I don’t have to pay any type of upfront fee.
[David] Yeah. Exactly. I think we got some interesting days ahead as we start looking and digesting this. Alice, good report. Good job on that, very much. As always, good discussion. I’m looking at the clock. We need to get this wrapped up.
Alice Alvey, Master CMB
She handles development of their World Class Training program designed to support UHM partners and organizational effectiveness.
Prior to UHM, Alice served as Senior Vice President at Indecomm leading the Indecomm-Mortgage U division, Internal QA and Compliance and SaaS technologies. Indecomm acquired Mortgage U in 2013, where Alice was President/Co-founder, providing training and consulting since 1996. Prior to MU she served as SVP of Operations at a national bank overseeing operations for wholesale, retail and correspondent from underwriting through servicing, and compliance.
She has been in the trenches of mortgage lending operations from application through servicing for over 30 years. Her authoring work in training content, policies and procedures and the FHA/VA Practical guides illustrates her ability to bridge regulatory requirements with day-to-day operations.
Alice has been a weekly contributor to the Lykken on Lending show since its beginning in April 2009 and has made her weekly contributions to 450+ episodes!