The Federal Housing Finance Agency has greenlit a new rule for mortgages going into effect in 2024, which could open the market to 4.9 million new borrowers, according to credit reporting agencies.

The new rule requires government-sponsored enterprises like Fannie Mae and Freddie Mac to accept a new scoring model—VantageScore 4.0—to assess mortgage loan applications.

The 4.0 version is VantageScore’s first update since 2013. The new credit scoring model brings 34 million previously unscorable consumers to the table, according to credit reporting firm TransUnion.

“VantageScore 4.0 increases opportunity in comparison to conventional models for lenders and borrowers by utilizing trended data to more accurately assess risk,” TransUnion said.

Credit data firm VantageScore crunched the numbers last week on how the new credit assessment will impact the mortgage market.

Among the key findings: “Imposing a minimum VantageScore credit score of 620 and applying a mortgage eligibility age criterion of 25-65 will give 4.9 million new borrowers access to the mortgage market.”

This new group of borrowers could take out as many as 2.7 million mortgages, and the new mortgage volume could top $1 trillion a year.

Mortgage rates rise toward 8% for the seventh straight week

That's good news for prospective home buyers as well as the supply side of the housing market and mortgage loan business. It couldn’t have come sooner.

The housing market essentially stalled in October over rising mortgage rates. Freddie Mac’s latest primary mortgage market survey found the average 30-year fixed rate home mortgage increased to 7.79% in the week ending October 26.

“For the seventh week in a row, mortgage rates continued to climb toward eight percent, resulting in the longest consecutive rise since the Spring of 2022,” Freddie Mac said. “Rates have risen two full percentage points in 2023 alone.” senior economic research analyst Hannah Jones said: “The milestone of 8%+ mortgage rates, like 5% treasury yields, emphasizes the financial headwinds facing borrowers in today's market.”

But Jones added that along with high mortgage rates and home prices, “recent new home sales data shows that buyers are finding a way to navigate the challenging environment.”

Home buyers and builders get creative with rising rates

As mortgage rates reach a 23-year high, home buyers and builders are finding ways to work around exploding borrowing costs.

Large home builders, for example, are offering an incentive to new home buyers that the industry calls a mortgage rate buydown.

In plain language, it's just a discount on interest rates from the seller. To keep new supplies moving in this high interest rate environment, some sellers are offering rates as low as 5%.

Meanwhile, all-cash home sales are on the rise for those who have the savings to afford it.

According to National Mortgage News, citing a recent report from the National Association of Home Builders: "The share of new single-family constructions bought with cash grew to 9.2% of sales in the third quarter, rising from 7.1% three months earlier.”

That’s a staggering 199,732 single-family home sales bought without a mortgage in the third quarter alone, according to data from the Fed.