Home equity deal shows VantageScore viable for RMBS ratings

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• Key Insight: Find out how S&P Global assigned preliminary ratings to a fintech's home equity transaction that used VantageScore 4.0.
• What's at Stake: Potential for use of more flexible credit measures and digital operations in the private secondary market for home loans.
• Supporting Data: S&P mapped the 753 weighted average VantageScore for the loan pool, to 742 on the classic FICO scale. Subsequent adjustments in this particular deal lowered it to 737.
  

Overview bullets generated by AI with editorial review. 

A new transaction by Aven is the first deal fully composed of home equity products underwritten using VantageScore to receive ratings from S&P Global's residential mortgage-backed securities team.

"What we tend to see is more adoption in the agency space, less in the non-agency," Jeremy Schneider, managing director and sector lead, RMBS - structured finance told attendees at S&P Global's Affordability Forum 2026 in New York. "But I will say we just issued preliminary ratings today on the securitization of home-equity line cards that uses VantageScore 4.0."

Bonnie Sinnock

The deal is the first to go through S&P's preliminary rating process with VantageScore 4.0 used to underwrite 100% of the loans, according to the company's report on the transaction, which also shows an alternative to the mortgage industry's standard tri-merge was used.

Other rating agencies may treat transactions with VantageScore, potentially provided with the classic FICOs that have been the mortgage industry's standard, but S&P was able to rate it based on VS4 alone using its methodology, Schneider said in an interview.

The collateral is a participation certificate representing a 100% beneficial interest in a pool of fixed-rate closed-end home equity receivables created under a pool of HELOC credit card accounts. HELOCs are typically considered exempt from ability-to-repay rules.

Home equity lines of credit share similarities with non-mortgage sectors where alternative credit metrics are used more freely. This makes HELOCs a natural way to introduce more use of VantageScore 4.0 as officials modernize credit in government-related mortgage markets.

The preliminary ratings S&P assigned to the Aven transaction, which range from a speculative grade B to the highest-end investment category of AAA, demonstrates the viability of VantageScore's use for at least one type of transaction in the private residential market.

Both alternative credit metrics and how the preliminary ratings treat digital originations, which consumer finance fintechs are increasingly using to handle home equity, also could be significant in a mortgage market with new business opportunities constrained by higher rates.

Adjustments for credit alternatives, digital operations

S&P was able to assign preliminary ratings to the deal through a mapping it uses to correlate VS4 scores with the classic FICO measures that the home mortgage industry has exclusively used until recently. This removes the need to also provide the classic FICO metrics for ratings.

While S&P has said it may need to make rating adjustments in situations where a choice of credit metrics could involve cherry picking, the Aven deal was underwritten conservatively.

The lower of VantageScore 4.0 and FICO 9, a predecessor to the 10T risk model the government-related mortgage markets are moving toward, was used in the Aven deal.

The rating agency did make some other adjustments because trimerged credit reports that have been standard for the residential mortgage industry were not used in the transaction. 

While other consumer finance sectors have used single reports, the mortgage industry has historically had a tri-merge standard with the aim of ensuring decisions about loans used for relatively larger housing transactions are based on sufficient data.

More recently, the Mortgage Bankers Association has pushed for further exploration of whether single report use for higher credit borrowers could cut costs and result in more competition for the three bureaus that back VantageScore without introducing too much risk.

Studies on the matter of whether using fewer than three credit reports for residential loans incurs too much risk have varied, with S&P finding bi-merge outcomes not significantly different from three reports during the Biden administration, when this was favored over a single score.

S&P Global rating analysts applied a haircut of 5 points to each VantageScore before mapping to account for the use of a single credit report rather than a trimerged one.

On a weighted average basis, the VantageScore for the pool before the application of this haircut was 753, which mapped to 742 on the classic FICO scale or 737 with the 5 point haircut.

S&P analysts also included adjustments for its operational assessment of Aven's digital platform, which does not allow for any underwriting exceptions, or physical documentation outside any that certain jurisdictions may require.

"In our analysis of the transaction, we performed an operational assessment of Aven, including a review of the underwriting guidelines which resulted in a loss coverage adjustment factor of 1.050x," the analysts wrote in their preliminary rating report.