By the Numbers
Vantage score should have little effect on MBS valuation
This material is a Marketing Communication and does not constitute Independent Investment Research.
Fannie Mae and Freddie Mac this week started allowing all lenders to deliver loans using VantageScore 4.0 as an alternative to the classic FICO score. VantageScores on average are higher than classic FICO scores, so the GSEs are using a straightforward adjustment to determine pricing for loans delivered with VantageScore. MBS market participants should find that loans scored with either model have similar prepayment behavior after adjusting for the typical higher levels reporting by VantageScore.
The average VantageScore 4.0 (VS4) was 9 points higher than its Classic FICO score for loans originated between January 2023 and September 2025 and delivered to Fannie Mae (Exhibit 1). The table groups loans into FICO and LTV buckets that match how the GSEs price loans. The difference varies across these groups; in many buckets the difference ranges from 15 points to 20 points.
Exhibit 1. Average difference between VantageScore 4.0 and Classic FICO score
Origination from January 2023 through September 2025.
Source: Fannie Mae, Santander US Capital Markets.
The GSEs made the simple assumption that VantageScore is equivalent to a loan with a 20 point lower Classic FICO. For example, a borrower with 700 FICO score and a 75 LTV loan would be charged a 1.25% upfront fee. A borrower with a 720 VantageScore 4.0 and 75 LTV would also be charged 1.25%. This adjustment is close to the difference for lower credit borrowers that are charged higher LLPAs. It also aligns perfectly with the 20-point FICO buckets the GSEs use to price loans, which makes it simple for investors to identify scores that are charged the same fee. Fannie Mae’s loan-level price adjustment (LLPA) matrix is available here and Freddie Mac’s credit fees are here.
Loans have similar prepayment behavior regardless of which score is used, after incorporating the 20-point adjustment (Exhibit 2). The graph shows S-curves for low credit score specified pools formed by grouping two different ways: (1) loans with FICO<700, or (2) loans with VS4<720. The VS4 loans do prepay a little faster in-the-money and a little slower out-of-the-money, but the difference is small.
Exhibit 2. Prepayment S-curves for borrowers with low credit scores
Fixed-rate 30-year loans, owner occupied, original LTV≤80, 6 to 24 months seasoned, $400,000 to $600,000 original loan size. Performance from January 2023 through August 2026.
Source: Fannie Mae, Santander US Capital Markets.
The graph also includes a third line that represents only loans that have low credit scores using both models. This is often known as “Lender’s Choice”—the lender runs both scores and can use the higher score to sell the loan with possibly a lower LLPA. In that environment, only loans that have low scores in both models—FICO<700 and VS4<720—would be put into a specified pool. This group has slightly higher convexity than either of the single-score S-curves, prepaying the slowest in-the-money and the fastest out-of-the-money. Therefore, convexity could improve a bit for low credit score pools.
S-curves are very similar for the high credit score population (Exhibit 3). One curve is Classic FICO≥700, another is VS4≥720, and the third is loans that meet either (or both) of those criteria. The S-curves are hard to distinguish; the VS4 S-curve is slightly faster than Classic FICO in-the-money, which suggests that model may be differentiating prepayment behavior that Classic FICO doesn’t pick up. But the difference is small.
Exhibit 3. Prepayment S-curves for borrowers with at least one high credit score
Fixed-rate 30-year loans, owner occupied, original LTV≤80, 6 to 24 months seasoned, $400,000 to $600,000 original loan size. Performance from January 2023 through August 2026.
Source: Fannie Mae, Santander US Capital Markets.
Interestingly, S-curve for loans that could have a high score in both models or only one model prepay the slowest when in-the-money, although the difference is very small. The reason is that the borrowers that have one good score, but not two good scores, have slightly better convexity than the loans with two good scores. If a lender uses one score then some of these borrowers would have been put into a specified pool. By using both models, these borrowers are delivered into a generic pool. That improves the convexity of generic pools. Total convexity in the market doesn’t change because specified pool issuance would drop and generic pool issuance would increase.
Lender’s choice assumes that delivering using the higher score (after the 20-point adjustment) is best execution, since that will always result in the lowest LLPA. However, for loans near the specified pooling threshold, there could be occasions that using the lower score makes sense. For example, the current pay-up for 2026 vintage, low FICO, 6.0% pools is $0-19+, according to Bloomberg’s BVAL. A 75 LTV loan with a 690 FICO and 730 VS4 would save 0.375%, or $0-12, on LLPAs by using the Vantage score. Delivering into a specified pool using the lower FICO score would net $0-07+ because the pay-up is higher than the LLPA difference.
Introducing VS4 does mean that some borrowers may receive a VantageScore that is over 20 points higher than the current FICO score (Exhibit 4). This shows the distribution of VantageScores received by borrowers with FICO scores between 680 and 700. Many borrowers received VantageScores over 720, which would often lead to a lower LLPA. So, some borrowers may find their refinance cost is lower with the introduction of VS4. But many borrowers also would receive comparable or lower VantageScore.
Exhibit 4. The relationship between the two scores is noisy
Loans with 700≤Classic FICO<720.
Source: Fannie Mae, Santander US Capital Markets.
More changes are coming, although it seems unlikely any will have big effect on MBS valuations. Fannie Mae and Freddie Mac are working towards authorizing use of the FICO 10T score. FHFA Director Pulte also posted that the GSEs will begin disclosing their internal credit metrics along with all three credit scores for MBS and CRT securitizations. More transparency is always welcome. Director Pulte also stated that Fannie and Freddie will explore allowing lenders to only pull credit scores from two credit bureaus and possibly even accept loans with no credit score for delivery. The FHA will start accepting VS4 and FICO 10T on January 1, 2027.
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