FHFA timeline for credit score model changes

Good morning. This is Mortgage Nuggets. We break down mortgage news into tiny little pieces. Like a termite. A knowledge termite.

1. New home sales beat expectations

Sales of new single-family homes in the US unexpectedly increased by 1.1% to an annualized rate of 640,000 in February, up from a revised 633,000 in January, according to government data.

This is the strongest pace since August, indicating that the housing market may be stabilizing after a tumultuous year of rising mortgage rates. That said, affordability remains a key concern for buyers, and the limited supply of homes on the market has also restrained sales.

Sales rose in the West and South, the two largest regions by purchases, but slumped in the Northeast to their lowest level since June. The median sales price of a new home rose by 2.5% YoY to $438,200.

2. FHFA timeline for credit score model changes

The FHFA has announced proposed timelines for the use of FICO 10T and VantageScore 4.0 credit score models by Fannie Mae and Freddie Mac. They also plan to transition to two, rather than three, credit reports from national consumer reporting agencies within a year.

The FHFA will gather industry feedback in the second quarter of 2023, publish Classic FICO data to support credit report updates in the fourth quarter of 2023, and move to a bi-merge system in the first quarter of 2024.

By the fourth quarter of 2025, the FHFA will have incorporated credit score model updates into capital and pricing. While the new credit modeling represents a welcome change for much of the industry, some stakeholders have expressed concern with FICO's recent pricing changes.

In a letter dated Nov. 22, the National Consumer Reporting Agency told its members that the “vast majority” of mortgage lenders would see price increases between 10% and 400% from FICO.

3. More Nuggets

📉 Mortgage rates in the US fell for a second straight week, easing costs for homebuyers in the market’s busiest season. The average for a 30-year fixed loan was 6.42%, down from 6.6% last week. It was the biggest one-week decline since mid-January. (Freddie Mac)

💼 The Federal Reserve on Wednesday enacted a quarter percentage point interest rate increase, expressing caution about the recent banking crisis and indicating that hikes are nearing an end. (CNBC)

📈 Mortgage prepayments increased in February due to increased refinancing activity after a dip in rates. This is after four months of record lows. The share of mortgages that prepaid rose to 0.35% from 0.33% in January. (NMN)

⚖️ The Consumer Financial Protection Bureau’s independent funding through the Federal Reserve is constitutional; the Second Circuit ruled ahead of a US Supreme Court review on the issue. (Bloomberg Law)

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4. Charted: Down payment down

The typical U.S. homebuyer is putting less money down on homes, with the median downpayment at 10% of the purchase price in January, the lowest in almost two years.

High mortgage rates have reduced competition in the housing market, so buyers do not need to distinguish themselves from other bidders with big deposits, according to a study by Redfin.

Home prices also remain high, which can impact the amount of money buyers have available for a down payment. In addition, more borrowers are turning to low down payment government lending programs.

5. Lower rates for Native American home loans

The U.S. Department of Veterans Affairs has reduced the Native American Direct Loan program interest rate from 6% to 2.5%, effective March 13.

The program offers direct loans to Native American veterans and veterans who are married to Native American non-veterans, providing assistance in purchasing, constructing, or renovating a home on trust land. Qualifying veterans can also gain access to the housing market without down payments, limited closing costs, and no monthly mortgage insurance costs.

The rate cut aims to make housing loans more affordable for Native American military veterans. Native American veterans can call 888-349-7541 for further information.

☀️ See you on Monday! Just for fun, bowling on another level.

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