The New Credit Scoring System Could Create a PASS/FAIL Mortgage Approval System.

By John Hopkins

If you have been watching the news lately, there is a lot of talk about the new credit scoring system VantageScore) being launched by the three major bureaus. There is plenty of speculationa bout how this radical change in judging borrowers credit-worthiness will affect the Real Estate and Mortgage Industry.

It is still too early to predict what impact the new scoring model will have on all mortgage lending, but industry expers agree that consumers who have lower scores will find many of their current lending options closed.

The wide disparity between the three bureau scores created a lending loophole which permitted many subprime buyers to obtain mortgage financing due to erring on the side of the borrower. With the introduction of a more accurate scoring algorithm, lenders will be tasked with building better loan files and preparing the more challenged borrowers for mortgage financing many months in advance. The VantageScore and scoring model will follow the traditional grading benchmarks the public has been familiar with since elementary school.

These new Vantage Scores are a radical change in grading analysis from the current FICO scores. Like any radical change to extablished systems, the integration and adoption to the new guidelines will be gradually integrated and problematic to many. Many Texas realtors are already concerned about their core clientele who may be left behind due to being graded too harshly by the new VantageScore system.

The Morgage Bankers Association suggests those realtors form alliances with lenders who understand FHA financing, helping the credit-challenged buyer and realtor partner weather the storm. Being that FHA underwriting guidelines and the TOTAL SCORECARD automated approval system approved borrowers based on credit criterian beyond the credit score, those FHA lenders may offer a distinctive advantage over the lender who has traditionally brokered their clients out to lenders based solely on existing mid FICO scores.