This Week's Credit Inquiry: How Credit Scores Will Shape 2019
There are a lot of changes happening in the real estate industry, but one seems to be waiting in the shadows to offer a big surprise as we inch closer to 2019. Credit scoring has become an ultra-competitive industry within the last decade, and is on track for one of the most interesting market changes the real estate industry has seen for a while.
First we need to start with the FHFA’s public request for information about whether or not they should transition out of a single model platform for mortgage lending. They collected thousands of opinions, conducted research, and created a strong argument for switching up the current credit scoring model. Then suddenly, they stopped dead in their tracks. The introduction of S.2155 or the Economic Growth, Regulatory Relief and Consumer Protection Act changed the focus of the FHFA, leading them “to define, through rulemaking, the standards and criteria the government-sponsored enterprises will use to validate credit score models.”
Without the backing of FHFA, the hope of a new credit scoring model, such as the VantageScore 3.0 being implemented in the mortgage lending process is waning. This hasn’t stopped the competition between credit scoring companies battling to grab market share. We now have the FICO XD, FICO 9, UltraFICO (great name), Vantage Score 3.0, VantageScore 4.0 and more that offer consumers more transparency. This doesn’t include the hundreds of consumer scoring platforms used in everything from buying a t-shirt to getting car insurance.
2019 is poised to offer fireworks for the real estate industry as we continue towards an eventual change in how we identify the risk of a future home buyer. This could be bitter sweet as any major change creates new hurdles, but could ultimately offer better data and risk analysis, making the home buying process more accessible.
Let’s just keep our fingers crossed that the next step isn’t the implementation of a social credit score, like this one in China…