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FHA to retain Classic FICO alongside new models in January

Created at 28 Aug · 6:05 PM1 source↑ Market-relevant
IN SHORT

The Federal Housing Administration is expected to implement VantageScore 4.0 and FICO 10T in January, while retaining the existing Classic FICO model. This move aims to modernize credit scoring for FHA loans, with lenders anticipating model consistency requirements for co-borrowers.

Key Numbers

January 2027case files dated on or after

Who's Involved

Federal Housing Administration (FHA)
expected to implement new credit scoring models in January
VantageScore 4.0
new credit scoring model to be adopted by FHA
FICO 10T
new credit scoring model to be adopted by FHA
Classic FICO
existing credit scoring model to be retained by FHA
U.S. Department of Housing and Urban Development (HUD)
announced FHA would adopt FICO 10T and VantageScore 4.0
FHA to retain Classic FICO alongside new models in January

↳ Why This Matters

This modernization of FHA credit scoring models could impact borrower access to mortgages and the pricing of FHA-backed loans, while the decision to retain Classic FICO aims to ensure stability in the mortgage-backed securities market.

Key facts

  • The FHA is expected to implement VantageScore 4.0 and FICO 10T in January.
  • The Classic FICO model will continue to be used.
  • Lenders will likely be required to use the same credit scoring model for all co-borrowers on a single loan application.
  • The FHA's decision to retain Classic FICO is influenced by secondary market conditions and bond liquidity.
  • Unlike conventional loans, the FHA rollout is expected to apply to all lenders simultaneously.

    • The Federal Housing Administration (FHA) is poised to integrate VantageScore 4.0 and FICO 10T alongside its existing Classic FICO model in January, according to industry sources. This initiative is part of a broader effort to modernize credit scoring for FHA loans. Representatives from the FHA indicated to lenders that any of the three models can be used for case files dated on or after January 2027. Discussions suggest that lenders will need to maintain consistency in credit scoring models for all co-borrowers within a single loan application, a measure intended to limit potential gaming of the system.

    Industry participants also noted that the FHA does not plan to discontinue the Classic FICO product with this rollout. Mortgage executives believe keeping the legacy model operational is crucial for maintaining liquidity in the secondary market, where many mortgage-backed securities are still collateralized and traded based on Classic FICO scores. An abrupt retirement of this model could negatively impact bond liquidity.

    In contrast to the Federal Housing Finance Agency's (FHFA) approach, which has involved a more phased implementation and testing with large lenders, the FHA's new scoring models are expected to be applied uniformly to all lenders at the launch. The pricing impact for FHA loans is anticipated to be limited, as the FHA primarily adjusts pricing through mortgage insurance premiums rather than loan-level price adjustments based on credit scores and loan-to-value ratios, unlike Fannie Mae and Freddie Mac.

    Frequently asked questions

    The FHA is expected to go live with VantageScore 4.0 and FICO 10T in January.

    No, the FHA has indicated that Classic FICO will not be sunset as part of the rollout.

    Based on current discussions, lenders expect model consistency will be required at the loan level, meaning different models cannot be mixed across co-borrowers on the same file.

    The FHA rollout is expected to apply to all lenders at launch, whereas FHFA's move toward new models has followed a more staggered approach with testing and implementation.

    What Happens Next

    01FHA to go live with new credit scoring models in January.
    02Lenders to implement model consistency requirements for co-borrowers.

    How It Developed

    FHA plans to launch VantageScore 4.0 and FICO 10T in January.
    Classic FICO will remain in use alongside the new models.
    Lenders expect model consistency for co-borrowers on the same loan file.
    The FHA's adoption of new credit scoring models follows a HUD announcement.
    Retaining Classic FICO is seen as important for secondary market liquidity.

    Sources

    T1
    FHA expected to keep Classic FICO as it adds new models in JanuaryHousingWire

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