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FHLBank SF Accepts Mortgage Collateral to Expand Applicants

The Federal Home Loan Bank of San Francisco (FHLBank San Francisco) and VantageScore announced that FHLBank San Francisco will now accept mortgage collateral originated by lenders using VantageScore 4.0 credit scores.

VantageScore 4.0 considers rental payments and other data points into its scoring algorithms that are not included in traditional scoring models, ushering in an innovative solution aimed at closing the racial homeownership gap.

By expanding the kind of mortgage collateral eligible to be pledged by member financial institutions borrowing from FHLBank San Francisco, lenders will be able to increase the amount of creditworthy mortgage applicants and include many underserved borrowers left out by conventional models.

“We believe in driving financial inclusion and creating more equitable access to credit in the communities we serve,” said Richard Wada, chief lending officer at Patelco CU, headquartered in Dublin, CA. “We’ve been using VantageScore 4.0 for our auto loans and credit cards and that’s provided us with a new pathway to provide fair and accurate credit scores to a broader population, creating opportunities for us to lend credit safely and soundly to consumers historically left behind. We look forward to leveraging VantageScore 4.0 for mortgage lending in the future.”

VantageScore estimates that using the VantageScore 4.0 credit model will result in approximately 33 million more consumers nationwide having access to a credit score that may aid them in obtaining a mortgage; including an estimated 5.5 million consumers within the FHLBank’s regional footprint of California, Nevada, and Arizona.

Congressman Horsford Thanks FHLBank SF
FHLBank San Francisco made its announcement during last week’s Innovations in Mortgage Finance Symposium.

“Thank you again to the Federal Home Loan Bank of San Francisco and to your member financial institutions’ commitment to real results,” said Rep. Steven Horsford (D-NV) in comments he made last week leading into the symposium event. “I am eager to see the further progress made at the symposium. Thank you for your continued partnership.”

The congressman delivered welcoming remarks at the symposium, discussing his commitment to closing the racial wealth gap and building intergenerational wealth in local communities.

“We know there are millions of creditworthy borrowers aspiring to be homeowners who are falling through the cracks,” said Teresa Bryce Bazemore, CEO of the Bank of San Francisco. “Expanding the pool of creditworthy applicants through the use of more inclusive and innovative predictive models, such as VantageScore 4.0, effectively helps us deliver the American Dream of homeownership to more applicants and further narrow the racial wealth gap. Over the last few years, we have dedicated significant resources and commitment to investing in expanding Black homeownership and we are excited to be the first mover among our peers and bring the program to life.”

Expanding the Pool of Creditworthy Applicants
In October 2022, the Federal Housing Finance Agency announced its approval of VantageScore 4.0 for Fannie Mae and Freddie Mac, enabling widespread industry adoption of the new credit scoring method and opening the door to millions more qualified applicants by incorporating rental payments and other data points into scoring algorithms not included in traditional scoring models, all without lowering credit risk standards.

Notably, FHLBank San Francisco is the first in the Federal Home Loan Bank System to accept collateral that uses VantageScore’s predictive and inclusive credit scoring model. This decision is the latest step that FHLBank San Francisco has taken over the last four years to advance racial equity in homeownership and wealth building:

  • In June 2020, FHLBank San Francisco announced it would redouble its commitment to making homeownership possible for more Black households.
  • In October 2021, FHLBank San Francisco launched the Racial Equity Accelerator, a two-year research and product advancement initiative with the Urban Institute to identify ways to close the racial homeownership gap.
  • As part of that initiative, in October 2022, the Urban Institute issued an analysis, “Reducing the Black-White Homeownership Gap through Underwriting Innovations,” that detailed ways to use alternative data to expand the pool of eligible homebuyers and recognized the impact of VantageScore 4.0.
  • In October 2023, FHLBank San Francisco published “Closing The Racial Equity Gap: A Call To Action,” which includes a package of recommendations for updating the housing ecosystem to close the racial homeownership and wealth gaps. In that report, FHLBank San Francisco highlighted the VantageScore 4.0 model as being more inclusive and particularly effective in communities currently excluded from the mortgage marketplace.
  • Following the report, FHLBank San Francisco began a validation process that was completed at the end of 2023, validating the VantageScore 4.0 model as acceptable for residential mortgage loans pledged to secure credit from FHLBank San Francisco.

Significant Impact on Boosting Homeownership
“The decision by the Federal Home Loan Bank of San Francisco to accept mortgage collateral backed by VantageScore will have a significant impact on boosting homeownership rates among creditworthy but traditionally underserved communities, while increasing safety and soundness,” said Anthony Hutchinson, senior vice president of government and industry relations for VantageScore. “Addressing the persistent disparities that exist in mortgage lending is an important precursor to reducing the homeownership gap in communities of color, which is a priority that both VantageScore and Federal Home Loan Bank of San Francisco share.”

Over 3,000 banks, fintechs, and other companies use VantageScore credit scores every day to assess consumer creditworthiness. Last year, over 19 billion VantageScore credit scores were used, representing a 30 percent yearly increase. Most top 10 US banks, large credit unions, and leading fintechs use VantageScore credit scores in one or more lines of business, including credit cards, auto loans, personal loans, and more. VantageScore is an independently managed joint venture company of the three Nationwide Credit Reporting Agencies (NCRAs) – Equifax, Experian, and TransUnion.

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