I had a computer once that used an operating system that was rather out-of-date when I was a teen. I didn't have a lot of money, but computers were my hobby. So, I found an inexpensive way to get the software that would update my computer. Unfortunately, the new operating system was so large that it required I upgrade other parts of my computer to make it functioned properly. Just recently, a new scoring model has been released. The question is, is it the operating software that will make things run smoothly, or is it going to cause everything else in the system to need an "upgrade"?
In reality, it's not a new model. It's been around for about 3 years. But it's not a model that's been embraced by Fannie Mae and Freddie Mac. However, the model does a few things that may be important to consider in the future. Because the new model gives less value to unpaid medical bills and unpaid debts that are subsequently paid off, it increases the amount of individuals that would qualify for a mortgage by adding anywhere from about 25 basis points to as much as 100 points.
But this model not only takes into account the medical debts and the missed payments but it also opens up the information within the credit report to utility and rental payments. This is intended to allow lenders to evaluate those who may not have as much of a credit history as a result of limited credit use. But there are some things that have to be asked.
Why are Fannie Mae and Freddie Mac not using this model? Is it possible that these models may make the mortgage industry less stable and let in borrowers who would sturggle to make payments? Or is it simply a struggle to embrace a new model? Whatever the reason may be, it's important to understand that FICO 9 may have a huge impact on the mortgage and real estate industry. Because of the way this "scoreboard" works, it would allow younger individuals, individuals with a rockier credit past, and even those with a lower income to be considered for loans. This means that there may be an increase in mortgages and house purchases. Is FICO 9 the fancy new operating software that helps things run more smoothly, or is it the piece that requires everything else in the system to need an upgrade as well?