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Huge housing trade groups push FHFA for FICO alternatives

Calls grow for Fannie and Freddie to use alternative credit scoring models

A coalition of the housing industry’s largest trade groups want Fannie Mae and Freddie Mac to look beyond FICO and begin using alternative credit scoring models.

In a letter sent last week to Federal Housing Finance Agency Director Mel Watt, the Mortgage Bankers Association, National Association of Realtors, the National Association of Home Builders, and other groups express their disappointment in Watt, who recently threw cold water on the idea that Fannie and Freddie would begin using alternative credit scoring models at any point in the next two years.

In a speech earlier this month, Watt said that making any changes to the government-sponsored enterprises’ credit scoring models before 2019 would be a “serious mistake.”

One of the reasons cited by Watt is the implementation of the single security, a projected billion-dollar joint initiative from Fannie and Freddie to develop a single mortgage-backed security that will be issued by the GSEs.

Earlier this year, the FHFA announced that it was delaying the implementation of the single security until 2019. In his speech, Watt noted the delay a reason for pushing back any consideration of using any credit scoring model beyond the FICO score the GSEs currently use.

“First, based on the overwhelming feedback we have received from the industry, it is clear that it would be a serious mistake to change credit scoring models before mid-2019 when the Common Securitization Platform is fully operational and the Enterprises implement the Single Security,” Watt said earlier this month. “For this reason, any credit score model change would not go into effect before 2019 even if I announced a decision today.”

Watt’s statement came on the heels of Sens. Tim Scott, R-South Carolina, and Mark Warner, D-Virginia, introducing a bill in the Senate that would push the GSEs to use alternative credit scoring models.

The FHFA first began officially looking at alternative credit scoring models in 2015, several months after Freddie Mac CEO Donald Layton told HousingWire that the GSE was studying FICO alternatives.

But delaying the adoption of alternative credit scoring models until at least 2019 is something that concerns the trade groups.

“FHFA’s effort to expand the use of alternative credit scoring models is a critical component to reversing the steady decline in homeownership particularly for low- and moderate-income as well as minority consumers,” the groups write. “That’s why, since your original announcement in the January 2015 Scorecard, organizations representing a broad array of consumer and industry leaders have whole heartedly supported FHFA’s effort to introduce competition and innovation into the use of various credit scoring models.”

The groups go on to say that Watt’s 2019 proclamation is troubling.

“We were disappointed to learn of your announcement regarding FHFA’s intention to push back the timeline for implementation to 2019 during a recent speech,” the groups write.

“The additional delay in implementation timeline comes after nearly 3 full years of internal review and assessment on part of the GSEs to see if added competition and critical updates to the credit models would increase access to homeownership,” the groups continued. “We were dismayed to hear about this significant push back of the timeline, and we would like to request a meeting with you to explore the factors contributing to the delayed implementation.”

In addition to the MBA, NAR, and NAHB, the letter is signed by America’s Homeowners Alliance, the Asian Real Estate Association of America, the Community Mortgage Lenders of America, the Consumer Federation of America, the Community Home Lenders Association, the Community Associations Institute, the Leading Builders of America, the National Association of Hispanic Real Estate Professionals, the National Fair Housing Alliance, the National Urban League, the National Community Reinvestment Coalition, the Real Estate Services Providers Council, and The Realty Alliance.

The groups conclude their letter by reiterating their view of the importance of using alternative credit scoring models.

“The undersigned organizations continue to believe that the GSEs should maintain the original timeline for introducing needed competition to the scoring system and updating the outdated credit scoring system that is not adequately serving today’s credit market,” the groups conclude. “This is one of the top priorities for our respective organizations and we would be pleased to meet with you as soon as you are available.”

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