On January 15, 2026, FHFA provided documents to the Housing Policy Council (HPC) in response to a Freedom of Information Act (FOIA) request made in July 2023. Those documents, although redacted, clearly show that the GSEs did not recommend the two-point approval as instructed by the FHFA. Instead, the GSEs only recommend approval of the FICO 10T. And although statistics to support the GSE’s recommendations or the final guidance of FHFAs have not been shared, it seems safe to assume that the GSE’s approved score (FICO 10T) should be higher than the non-approved score (VantageScore 4.0) when faced with independent testing and verification. So why move to the lender’s preferred model?
It is in that context that I offer more thoughts about the potential risks and costs that a two-point, lender-choice system can bring.
The second mortgage market rarely makes the headlines, but it plays a big role in what borrowers end up paying for their mortgage. When lenders start loans, they usually don’t keep them. Instead, those loans are sold to investors—usually through Fannie Mae and Freddie Mac—who commit to mortgage-backed securities (MBS) and often assume some of the risk through their Credit Risk Transfer (CRT) programs. The amount investors are willing to pay for those loans directly affects home prices and consumer payments.
That’s why a seemingly technological change—allowing lenders to choose which credit scores they use initially, be it FICO or VantageScore—will have meaningful pricing implications across the board.
What changed and why it matters
Historically, the mortgage market has relied on a single, standardized credit score: Classic FICO. Almost everyone, investors, mortgage insurance companies, rating agencies, etc., use the same method to measure risk.
Now, the FHFA has indicated that lenders will be able to choose between FICO and VantageScore when underwriting a loan they plan to sell in the secondary market. But what no one is talking about is that by introducing choice, it also introduces uncertainty and, in a market where everything comes down to confidence in forecasts, more uncertainty means risk takers have to raise the price.
How the choice of lender can affect rates
Different points, different danger signals
Credit scores help determine how risky a borrower appears to be. If two different scoring models evaluate the same borrower differently, lenders will use the score that produces a better economic outcome—such as being suitable for more borrowers or offering better rates.
At the loan or pool level, where score selection is an option, it creates uncertainty about how scores are selected to originate each loan. And if the lender chooses the higher of the two options, it basically changes the meaning of the credit score being used. For example, a 750 Classic FICO will have a lower expected default rate on a loan where Classic FICO is the only score available, and a higher expected default rate on a loan where the lender has chosen or chosen between two scores. The bottom line is that there is a signal of having multiple scores available for lenders to choose from. And risk takers, including the secondary market, must assume that the high points have been selected, so they must adjust the price to compensate for the additional risk.
Secondary market ripple effects
Investor confidence and high yield
The secondary market operates on the trust of forecasts. Investors want to know whether a loan with a certain credit score today has the same relative performance as a loan with the same score five or ten years ago (allowing for differences due to changing economic factors).
The impact of lender selection changes the equation. And if investors lose some confidence in their forecasts, they will eventually need higher yields to compensate for the increased risk, which will be passed on to consumers and make housing more affordable.
Mortgage insurance and risk pricing
Mortgage insurers and other risk holders also rely on predictable credit metrics. If the selection of points and the selection process varies by borrower, insurers will need to adjust the prices for the increased uncertainty, which will mean higher insurance premiums—another cost that negatively affects home buying.
What this means for consumers: Lower potential costs earlier, higher costs later
There may be near-term savings for consumers if lenders use two high credit scores. However, risk takers, including MBS investors, mortgage insurers, reinsurers, etc., will adjust very quickly. Their livelihood centers are focused on predictability, and allowing the choice of the lender adds uncertainty and will require rates and premiums to adjust higher, e.g., as in the example above – 750 FICO does not work in a mixed environment and results in a higher expected rate of default when compared to that same group without the choice of the lender – it will have higher losses and therefore require a higher value.
It is also worth considering that although cost savings are possible, lenders will be forced to purchase both scores for each applicant. If they don’t, there’s a chance the unsold score will improve, and another lender will win the loan at a better rate. This will only increase costs for consumers.
Big picture
Lender choice may be positioned as the ability to create competition that leads to lower loan costs—but that does not hold when, in fact, all risk takers will have to adjust the prices of lender choice. And lenders will need to shop around for both points, though, to ensure they’re offering the best deal. And, we should mention, we haven’t considered the reasonable implementation costs of this change.
In fact, introducing lender choice will likely translate into higher borrowing costs for consumers, even though its intention was to do the opposite.
Jim Krueger is a 25-year casualty officer from the mortgage insurance industry.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: [email protected].
