Thanks for visiting The Mortgage Reports. To stay absolutely current on mortgage markets and important guideline changes, be sure to take my free daily email alerts.

The three major credit bureaus -- Experian, Equifax and TransUnion -- announced that they jointly developed a new credit scoring system called VantageScore.

For mortgage lenders specifically, credit scoring determines the likelihood that a person will default on their home loan and VantageScore attempts to fix two issues in credit scoring:

1. Each bureau uses its own proprietary mathematical formula to derive a credit score
2. Some creditors report to one bureau and not all three, meaning that two of three scores are "incomplete"

This is one reason why mortgage lenders use the middle credit score as reported by all three bureaus.  Not the average score; the middle score. 

For example, if a person's credit scores are:

• Experian: 720
• Equifax: 756
• TransUnion: 688

The mortgage credit score is 720.  The VantageScore system aims to change that. 

Rather than report three separate scores, VantageScore incorporates information from all three bureaus into one report and one score.

Mortgage lenders don't like the VantageScore model because it changes credit scoring from an approximate scale of 350-850 scale to a scale of 500-900.  That may not seem like a big deal, but remember that the 350-850 scale is the entire basis of the mortgage lending risk model.

A mortgage lenders can predict with near certainty how well a 520 credit score borrower will perform on his mortgage versus a 620 borrower versus a 720 borrower. 

If the scoring model changes, the mortgage lending risk algorithms must change, too.  And right now, that will add cost to an industry that's already facing shrinking profits.  As a result, mortgage lenders won't accept VantageScore without putting up a fight.

See, for mortgage lender using the "old" scoring models, there is mountains of correlating the current scoring system to the likelihood of foreclosure. 

And, when I say "mountain" think McKinley, not Jack Frost Big Boulder. 

For VantageScore, there's no such thing.  Lenders have no means to map VantageScore system score to their existing credit scoring model.

With VantageScore, lenders can't predict the likelihood of default and so they won't lend their dollars.  And if they won't lend their dollars, they'll bankrupt.  Unfortunate, yes; but true.

So, while VantageScore the product may help credit bureaus generate more sales, VantageScore the credit model is a mortgage industry non-starter. There's just no reason to use it.

---

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.