On October 8, 2026, the Federal Housing Administration (FHA) issued Mortgagee Letter 2026-11 (ML 2026-11), updating FHA’s Minimum Decision Credit Score (MDCS) methodology to facilitate the use of alternative credit scoring models. Most notably, the new framework accommodates FICO 10T and VantageScore 4.0 alongside Classic FICO and establishes a methodology for determining a borrower’s score when a mortgagee submits more than one credit score model. The changes apply to all FHA-insured Title II Single Family mortgage programs and are effective for FHA case numbers assigned on or after January 1, 2027.
What Happened?
FHA revised Handbook 4000.1 to establish a new framework for calculating the MDCS when one or more credit score models are submitted. ML 2026-11 expressly identifies Classic FICO, VantageScore 4.0, and FICO 10T as examples of a “Credit Score Model Type.”
The change reflects FHA’s adoption of FICO 10T and VantageScore 4.0 alongside Classic FICO. FHA explains that the newer models use trended credit data reflecting consumers’ credit behavior over time and also use non-traditional credit information such as rent and utilities. According to FHA, these features can provide greater predictive power and help expand access to homeownership.
Importantly, FHA will continue to require a tri-merge credit report, and its existing minimum credit score thresholds are not changing based on the Credit Score Model Type used.
Background
Historically, FHA’s MDCS methodology focused on selecting a score from the scores reported for each borrower and then, for a multiple-borrower transaction, using the lowest applicable score among the borrowers. ML 2026-11 modifies that framework to address a new circumstance: a lender may now submit scores generated under multiple Credit Score Model Types.
To accomplish this, FHA introduces a new concept, the “Borrower-Level Score,” meaning the credit score selected for each borrower after evaluating the scores from each Credit Score Model Type submitted. The MDCS is then the lowest Borrower-Level Score among all borrowers on the transaction.
How Will the New MDCS Methodology Work?
Under the revised methodology, the mortgagee must first determine a score for each Credit Score Model Type submitted for each borrower. Within each model:
- If three differing scores are reported, the lender uses the middle score.
- If two differing scores are reported, the lender uses the lower score.
- If only one score is reported, the lender uses that score.
The lender then compares the selected scores across the different model types submitted for that borrower. The lowest of those scores becomes the Borrower-Level Score. Finally, where there are multiple borrowers, the lender uses the lowest Borrower-Level Score among all borrowers as the transaction’s MDCS.
In other words, submitting multiple scoring models does not allow a lender to select whichever model produces the most favorable score. FHA’s methodology effectively applies a “lowest of the selected scores” approach at the model level, followed by another lowest-score determination across borrowers.
For transactions involving multiple borrowers where one or more borrowers have no credit score because of non-traditional or insufficient credit, the MDCS is the lowest Borrower-Level Score among the borrowers who do have credit scores.
Lenders May Submit Multiple Models, but Must Use Them Consistently
FHA permits a mortgagee to submit one or more Credit Score Model Types, but the same model type or types must be used for all borrowers. Thus, a lender could not, for example, submit FICO 10T for one borrower while submitting only VantageScore 4.0 for a co-borrower.
Moreover, the credit report retained in the FHA case binder must contain all Credit Score Model Types submitted in the final TOTAL Mortgage Scorecard submission; however, the credit report may contain additional scoring models that were not submitted to TOTAL.
FHA’s Existing Credit Score Thresholds Remain Unchanged
Despite the methodological changes, FHA is not altering the substantive MDCS thresholds.
A transaction remains ineligible for FHA financing if its MDCS is below 500. An MDCS of 500 through 579 generally limits a transaction to 90% LTV, while an MDCS of 580 or higher remains eligible for maximum financing. For applicable refinances, the existing 97.75% maximum financing threshold for an MDCS of 580 or above likewise remains unchanged.
What About HECMs?
ML 2026-11 also cleans up FHA’s Home Equity Conversion Mortgage (HECM) provisions. Because credit scores are not an underwriting component for HECMs, FHA is deleting the Handbook’s standalone “Borrower Minimum Decision Credit Score” provision for HECMs rather than carrying the new MDCS framework into the reverse mortgage program.
Why Does It Matter?
For FHA mortgagees, the primary impact is likely to be operational rather than a change in credit eligibility standards. The new methodology affects how lenders determine the operative score when multiple scoring models are used and establishes consistency and documentation requirements that will need to be reflected in the FHA origination process.
What Do I Need to Do?
FHA’s adoption of alternative credit scoring models represents a meaningful modernization of its underwriting framework. Although the underlying FHA credit score thresholds remain intact, mortgagees that elect to use multiple scoring models will need to ensure that their systems, documentation, and controls correctly implement FHA’s new method for translating those scores into a single MDCS. Specifically, FHA mortgagees should:
- Review Credit and Underwriting Systems: FHA lenders should assess whether their loan origination, credit-reporting, and underwriting systems can identify multiple Credit Score Model Types, calculate a Borrower-Level Score under FHA’s prescribed methodology, and correctly determine the transaction-level MDCS.
- Coordinate With Credit and Technology Vendors: Lenders planning to use FICO 10T or VantageScore 4.0 should evaluate vendor readiness and ensure that credit-reporting and underwriting integrations support the model types the lender intends to submit.
- Update Policies, Procedures, and Quality Control: Written FHA underwriting procedures and QC testing should be reviewed for references to the existing MDCS methodology and updated as necessary to address model-level score selection, consistency across borrowers, and the new documentation requirements.
- Prepare for January 1, 2027: The new requirements apply based on FHA case-number assignment, not application date or closing date. Mortgagees therefore should ensure that affected processes are ready for loans receiving FHA case numbers on or after January 1, 2027.
Alston & Bird’s Consumer Financial Services team is available to assist FHA mortgagees in evaluating and implementing the requirements of ML 2026-11.