FICO Adjustments Could Provide Boon for First-time Homebuyers

New criteria for widely used credit scoring models could benefit prospective homebuyers, specifically those shopping for the first time. Credit reporting agency Fair Isaac Corp. recently announced it will be adjusting its scoring model, and introducing FICO 9, which includes changes that could prove advantageous for first-time homebuyers once it is fully implemented.As HousingWire reported, the implementation process could be gradual, with many major lenders and government-sponsored enterprises not yet ready to fully adopt the new model. Still, the notion of more new buyers potentially becoming eligible for mortgage credit over the rest of the decade is promising for the housing market as a whole. In turn, if these buyers prove adept at fulfilling their mortgages and retaining their homes, the impact of a new scoring model could include heightened rates of approval. Who stands to gain? Primarily, FICO's new system aims to minimize the impact of paid medical debt, whether those debts reached collections or not. It's an adjustment believed to benefit many younger adults who have paid bills online but frequently overlooked or not received medical bills sent in the mail. From a homeownership perspective, changes to the evaluation model could have the most impact on those with limited credit history. Consumer advocacy groups have regularly expressed a need for credit models to adjust their evaluations of individuals whose profiles aren't as extensive - such as immigrants or the self-employed - and FICO 9 proposes to rid the model of any penalties for limited profiles. If that proves true, certain homebuying populations could benefit greatly. The 2013 State of the Hispanic Homeownership Report from the National Association of Hispanic Real Estate Professionals listed limited credit history as one of the primary barriers for prospective Hispanic homebuyers. Hispanics accounted for nearly half - 47 percent - of all U.S. homeownership growth in 2013, but many buyers paid in cash because they didn't meet mortgage credit approval standards. The FICO 9 adjustment could eventually make more Hispanic buyers eligible, and if mortgage fulfillment trends continue in a positive direction, the changes might be more widely adopted. For now, however, little change will be evident. Fannie Mae and Freddie Mac, along with many private lenders, have provided no indication they will implement FICO 9 this year, noting the cost of the transition outweighs the immediate benefits. Fannie, Freddie and the U.S. Federal Housing Administration (FHA) combine to back approximately 90 percent of all U.S. home loans, so their practices and the models they use will continue to most immediately affect the market. But, if the new model proves reliable, it may become widely adopted in a hurry.