The Federal Housing Finance Agency (FHFA)’s decision to apply the same loan-level price adjustments (LLPAs) for Classic FICO and VantageScore 4.0 loans is being viewed as a de facto incentive for VantageScore adoption — and as a source of new uncertainty around investor reactions and risk-based pricing.
Industry leaders at HousingWire’s Mortgage Banking Summit in Dallas on Thursday said the move, which eliminates a prior 20-point calibration between the two credit scores, will likely accelerate use of VantageScore but leaves open questions on how mortgage-backed securities (MBS) investors will respond.
“There’s some confusion about how that actually works; the immediate reaction we got from our members was this is going to take time to implement,” Bill Killmer, senior vice president for legislative and political affairs at the Mortgage Bankers Association (MBA), said on stage.
On Monday, FHFA Director Bill Pulte said Fannie Mae and Freddie Mac will move to a single pricing matrix for LLPAs, rather than maintaining separate grids for Classic FICO and VantageScore 4.0. Pulte said the change follows feedback from lenders and consumers, while arguing that separate grids “makes zero sense.”
“Fannie and Freddie are hereby moving to ONE PRICING GRID with VantageScore joining the existing FICO Classic pricing grid,” Pulte posted on X.
Previously, LLPAs calibrated for FICO were applied to VantageScore 4.0 at 20 points higher. The top purchase tier for FICO remained 780 and above, aligned with an 800-plus VantageScore bucket.
With VantageScore 4.0 now mapping directly into the existing FICO grid, more borrowers will qualify for lower LLPAs when underwritten with VantageScore instead of FICO, without any change in underlying collateral or borrower profile, executives said.
Killmer said there is “no question it will increase utilization of Vantage.” But the response by investors remains a key unknown, he added.
“Is there going to be some bias in terms of their appetite for Vantage-driven MBS versus FICO?” Killmer asked. “Does that mean that FICO accelerates to put their 10T model out as opposed to Classic sooner than they might have?”
Other participants at the conference also questioned whether investors will differentiate between MBS pools backed by loans underwritten with newer credit scoring models versus Classic FICO, especially if fee structures no longer explicitly compensate for the modeled risk differences.
“What concerns me now that the LLPAs are the same is we just don’t have enough data to bank on it when it comes to secondary market,” said Greg Sher, managing director at NFM Lending.
Erin Dee, senior vice president and chief information officer at BankSouth Mortgage, said her company will price loans backed by VS4 and Classic FICO on the front end, but those “buying my bonds on the back end are not going to do the same thing. … So what position is this going to put lenders in when the secondary market disagrees with the LLPA?” she asked.
Early adoption
So far, the monthly volume of VS4-backed loans remains limited but concentrated among the largest agency originators. VantageScore accounted for 5.5% of originations through Fannie and Freddie in September, flat compared to August, according to Keefe, Bruyette & Woods (KBW) analysts.
Rocket Mortgage and United Wholesale Mortgage were responsible for 95% of that VantageScore volume, with penetration of 34% at Rocket — which recently announced that VS4 is their default credit model — and 24.9% at UWM, the analysts said.
The removal of the 20-point haircut on VantageScore 4.0 loans results “in a lower LLPA for a large percentage of loans if they use VS4 instead of FICO,” KBW analysts wrote. “We see the action to combine the grids as a backdoor LLPA reduction, since most VS4 borrowers will now have a lower LLPA.”
For example, a borrower with a 700 FICO score and a 720 VantageScore would previously have been charged a 1.5% upfront LLPA using the FICO-based grid. Under the new system, the same borrower would pay a 1.25% upfront LLPA using the 720 VantageScore, while the 1.5% LLPA under FICO pricing remains unchanged. In practice, that borrower is now more likely to be qualified using the VantageScore.
An analysis by Pivot Financial suggests the policy functions much like a targeted reduction in upfront guarantee fee compensation on loans where VantageScore is used.
“If an affected VantageScore loan moves directly into a more favorable Classic FICO pricing bucket, the Enterprise can receive less upfront compensation even though the borrower, property and mortgage have not otherwise changed, hence not providing more beneficial characteristics to warrant the revision,” Pivot CEO Jennifer McGuinness wrote in a report.
Pivot’s historical analysis of approximately 22.8 million matched loans through Freddie Mac indicates that under a scenario where the unified approach places the same numerical VantageScore directly into the existing Classic FICO grid, about 68.7% of the historical VantageScore population would receive improved score-based pricing.
In the more recent 2023 through third-quarter 2025 population, roughly 72.5% of VantageScore loans would see improved pricing, according to the analysis.
This means loans that were publicly framed as “riskier” using prior calibrations will now enter MBS pools without additional upfront compensation for that modeled risk. This can materially impact the bond investment, if the saturation of VantageScore loans is material, according to McGuinness.
