A big decision could be coming down the pipe as it relates to whether the credit scoring models used by government sponsored enterprises Freddie Mac and Fannie Mae should be updated. In early 2015, the agency began looking at the current methods for the credit scoring models based on company’s Vantage Score and Fair Isaac Corp.

As a result of that review the Federal Housing Finance Agency and Fannie Mae and Freddie Mac want to consider the alternative credit score models in 2016 as appropriate and begin moving into the implementation and planning process. This is as a result of information shared on the FHFA scorecard released just last week. Evaluating various score models for possible adoption is well underway according to experts at FICO. Joanne Gaskin says that the agency plans to bring this to a conclusion by 2016. Currently, the FICO 4 credit scoring model that was released in 2004 is the one being used by the government sponsored agencies.

The most recent version is FICO 9 and was released in 2014. Although the number of consumers scored by FICO 9 is not that much more than FICO 4, the recent model is better at predicting and scoring borrowers who are capable of managing debt. This allows lenders to have access to underwriting more consumers and ultimately increasing mortgage originations.

More consumers will also benefit because they will be able to tap into the possibility of owning a house, which has previously kept many from even applying for a mortgage. A tight market and tight credit restrictions in the wake of the most recent housing market collapse meant that many individuals interested in owning a home simply had to wait for a better time, but the broadening with the new version of these applications could be critical for boosting the housing market.

Many lenders across the country use FICO 5 or FICO 4 in order to deliver loans to the government sponsored enterprises with underwriting systems that have been automated. These GSE’s are looking at Vantage Score 3.0 as well which was released in 2013. The Federal Housing Finance Agency will consider the effort as well as the cost that it would take for a transition over to a newer FICO model or to Vantage Score. It will be complicated, costly and can take a great deal of time for Fannie Mae and Freddie Mac. Lenders should continue to pay attention to this evolving issue to determine how it may impact them.