While he says it’s too early to tell what the full impacts will be from an expanded set of credit scoring models, Mat Ishbia thinks the inclusion of VantageScore 4.0 into the loan underwriting process will help more borrowers qualify for mortgages.
Ishbia, the president and CEO of United Wholesale Mortgage (UWM), weighed in on the topic of credit scores during last week’s Association of Independent Mortgage Experts (AIME) Fuse event in Austin.
“I get more emails about VantageScore than almost anything we do at UWM — every day,” Ishbia said. “I get multiple emails about how VantageScore saved a loan, helped them win a loan, helped them beat another lender.”
Ishbia’s remarks to mortgage brokers at the AIME Fuse event came not long after the Federal Housing Finance Agency (FHFA) made VantageScore 4.0 available to all approved single-family lenders doing conventional loan business through Fannie Mae and Freddie Mac.
Lenders are now allowed to choose between VS4 and Classic FICO, according to FHFA Director Bill Pulte, although FICO Score 10T is not yet eligible for delivery to the government-sponsored enterprises. Pulte said earlier this month that he’s in discussions with FICO about pricing details.
Last month, HousingWire reported that the Federal Housing Administration is expected have VS4.0 and FICO 10T available in January for FHA loans, adding to the existing Classic FICO product. The expectation at that time was that loan-level model consistency would be required, meaning lenders will not be able to mix models for co-borrowers on the same loan file.
UWM recently reported that about 25% of its borrowers are currently seeing a more advantageous credit result when using VS4 versus Classic FICO, adding that this share could 40% by the end of September.
At AIME Fuse, Ishbia shared a story about a broker partner whose preapproved borrower had a FICO score of 733. While the broker was able to use that score to qualify them under one set of terms, he revisited the original offer a few weeks later after the buyer went under contract.
Using UWM’s free credit report, he obtained a VantageScore of 775 for the buyer, which was lowered to 755 once a mandatory 20-point adjustment was made. That pushed the loan-level price adjustment (LLPA) into the next-lowest bucket.
“Not only did this improve loan pricing by three eighths (of a percent) — a lower LLPA — but it also saved the borrower more than $100 a month on (mortgage insurance),” Ishbia said. “… It’s not just about do they qualify or do they not. It’s not just about potentially lower LLPAs. It’s also about mortgage insurance, getting the mortgage insurance companies bought into it, so all three things can happen.”
Not everyone in the mortgage industry is convinced of the benefits of the new model. An analysis published earlier in September by Pivot Financial found that while VantageScore 4.0 may save lenders money on credit score costs, it can make loans “materially more” expensive for many borrowers over the life of the loan.
“The GSEs do not know how VantageScore is going to perform,” said Jennifer McGuinness-Lubbert, CEO of Pivot Financial. “These are unknown risk adjustments and although the data from the credit bureaus feed these two models, the models are materially different: a 750 FICO score is not the same as a 750 VantageScore.”
Streamlined underwriting benefits
Ishbia’s 45-minute presentation at AIME Fuse also included a discussion of UWM’s recently launched Underwriter+, which aims to put the underwriter who reviews a loan file in charge of more of the process.
Historically, mortgage files move among multiple teams during processing, with different employees responsible for underwriting, documentation and coordination with borrowers and third parties. UWM created Underwriting+ in an effort to reduce these handoffs.
“We’ve been piloting this for, like, 60 days hard — but I’ll call it six months soft — and the data has been off the charts, as in faster closings, higher percentage closings, less touches to the consumer and underwriter,” Ishbia said.
The Michigan-based lender previously reported that it closed thousands of loans under a program pilot. These files averaged 8.3 days from submission to clear-to-close, with an average of 2.1 underwriting touches per file.
“Does this help brokers save money? Probably. Does it help brokers scale? Probably,” Ishbia added.
UWM’s goal to shorten underwriting timelines comes as independent mortgage banks reported higher profits in the second quarter, according to Mortgage Bankers Association (MBA) data.
While production revenue declined to 333 basis points, or $11,909 per loan, lower expenses helped boost profitability. Production expenses fell to 308 bps, or $10,936, in the second quarter. Despite the improvement, the MBA said that quarterly production profits remain below the industry’s historical average.
