Mortgage

House reintroduces bill to end “FICO monopoly” at Fannie Mae and Freddie Mac

Finally opens up the door for competition

Three senators are reigniting the fight to allow Fannie Mae and Freddie Mac to consider alternative credit-scoring models beyond the FICO credit score the government-sponsored enterprises currently use.

This week Reps. Ed Royce, R-Calif., Kyrsten Sinema, D-Az., and Terri Sewell, D-Al., introduced H.R. 898, the Credit Score Competition Act, which enables the GSEs to consider alternative credit scoring models when making mortgage purchasing decisions.

Royce and Sewell first introduced in December 2015, but since Sewell is now seated on the House Ways and Means Committee, Sinema became the lead Democrat on the bill.

“I am proud to help reintroduce this critically important legislation as Fannie Mae and Freddie Mac continue to rely on credit score models that are outdated and don’t necessarily take into account something as simple as whether borrowers have paid their rent on time,” added Sewell. “This legislation takes an important step towards addressing this issue and helps make homeownership a reality for more Americans across the country.”

Plus, the fight to introduce alternative credit scoring models at the GSEs goes even further back. Freddie Mac CEO Donald Layton told HousingWire back in November 2014 that it was looking to add other credit score providers, saying they were studying one or two alternatives to FICO.

“Alternative credit score consideration by the GSEs is a win-win: it opens up the market in a responsible manner for those qualified to buy a home and eliminates the government-backed monopoly in credit scoring. That's why the Credit Score Competition Act has garnered such strong bipartisan support," said Royce.

As it stands, Fannie Mae and Freddie Mac exclusively rely on a single credit scoring model to make mortgage purchasing decisions, and when this is merged with the GSEs’ dominance of the secondary mortgage market, it has resulted in a government-backed monopoly in credit scoring, the joint press release stated.

The new act, instead, directs the Federal Housing Finance Agency to create a way to open up the GSEs to alternative empirically derived and statistically sound credit scoring models

“Many creditworthy and financially responsible Arizonans don’t qualify for government-backed mortgages because of an outdated and flawed credit-scoring system,” said Sinema. “Fannie Mae and Freddie Mac should have the ability to look beyond traditional forms of credit and take into account factors including whether or not borrowers pay their rent on time. Our bipartisan solution helps more hardworking Arizona families achieve the American Dream.”

If passed, the act would open the door for other credit score companies like VantageScore Solutions. “Markets work most efficiently when there’s competition and the status quo is effectively a government sanction monopoly,” said Barrett Burns, president and CEO of VantageScore Solutions.

“We are supportive of all of the efforts to bring much needed competition among credit score model developers into the mortgage origination space,” said Burns. “From the beginning, our ask has always been to allow lenders to choose among today’s more predictive models that score more creditworthy consumers without lowering credit standards.”

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