"The secondary mortgage market doesn't usually make headlines, but it plays a huge role in what borrowers ultimately pay for a mortgage. When lenders originate loans, they typically don't keep them. Instead, those loans are sold to investors—often through Fannie Mae and Freddie Mac—who bundle them into mortgage-backed securities (MBS) and frequently lay off some risk via their Credit Risk Transfer (CRT) programs. The price investors are willing to pay for those loans directly affects mortgage rates and fees for consumers."
"Historically, the mortgage market has relied on a single, standardized credit score: Classic FICO. Nearly everyone, investors, mortgage insurers, rating agencies, etc., has used the same yardstick to measure risk. Now, the FHFA has indicated that lenders will be able to choose between FICO and VantageScore when underwriting loans they plan to sell into the secondary market."
"Those documents, though redacted, clearly indicated that the GSEs did not recommend approving two scores as was directed by the FHFA. Rather, the GSEs only recommended approval of FICO 10T. And though the analytics to support either the GSEs recommendation or the FHFAs ultimate direction have not yet been shared, it appears safe to assume that the GSE approved score (FICO 10T) must have outperformed the unapproved score (VantageScore 4.0)."
The FHFA approved two credit scores for mortgage underwriting despite GSE recommendations favoring only FICO 10T. This decision introduces a lender-choice model allowing originators to select between FICO and VantageScore when underwriting loans for secondary market sale. The secondary mortgage market significantly influences consumer mortgage rates and fees through investor pricing of mortgage-backed securities and Credit Risk Transfer programs. Historically, the mortgage industry standardized on Classic FICO, creating uniform risk measurement across investors, mortgage insurers, and rating agencies. Allowing lenders to choose between different credit scores disrupts this standardization, creating potential pricing implications and risk assessment inconsistencies throughout the system.
Read at www.housingwire.com
Unable to calculate read time
Collection
[
|
...
]