FHFA takes next step to changing credit scoring models, requests input

Looks to expand homeownership opportunities

The Federal Housing Finance Agency is asking interested parties to weigh in on its request for input on its possible change to its credit scoring models.

As part of the agency’s 2015 and 2016 Scorecards for Fannie Mae, Freddie Mac and Common Securitization Solutions, each enterprise assessed the potential impact of updating its credit score requirements from Classic FICO to another scoring model.

The FHFA explained the assessment was limited to third party credit score models available at all three national consumer reporting agencies, also known as credit bureaus or credit reporting agencies. The assessment was also limited to mortgage loan applications received from lenders and mortgage loans acquired by the Enterprises.

The credit score models independently analyzed by the Enterprises were – Classic FICO, FICO 9, and VantageScore 3.0.

And VantageScore Solutions expressed its support for the agency’s actions, saying the government needs to challenge the monopoly of FICO.

“FHFA’s request for input is a step forward towards creating a marketplace where credit scoring models can be judged on their predictiveness, innovation and inclusivity instead of the status quo where the government has created a de-facto monopoly for FICO,” said Barrett Burns, VantageScore Solutions president and CEO. “Monopolies never benefit markets or consumers and they create the opportunity for pricing power unchecked by competition.”

“Through its request, FHFA is asking probing, wide reaching questions and we would expect market participant answers to be similarly wide ranging,” Burns said. “Ultimately, consumers and the lenders who serve them must be prioritized and the best way to do that is to support competition between credit score model developers.”

However FICO is also in support of the FHFA’s review process for its proposed changes, telling HousingWire that FICO Score has been the industry standard because it is trusted to be independent, predictive and reliable.

“We appreciate the thoughtful and deliberate process the FHFA is undertaking to examine the implications of proposed changes to credit policies in the $2 trillion mortgage market,” FICO said. “We share Director Watt’s concerns about the potential consequences of adopting a two-score approach to underwriting conforming mortgages. While noting that it will not improve access to homeownership, he has also raised questions about the consequences when one score is jointly owned by the major credit bureaus – Equifax, Experian and TransUnion.”

“This request for information is an important opportunity to ensure that credit underwriting requirements are in the best interests of taxpayers and homebuyers,” FICO continued. “They deserve a credit scoring model that responsibly provides access to homeownership while maintaining independence and strong standards to ensure the continued stability of the U.S. housing market. The FICO Score has been the industry standard for credit scores for more than 27 years because it is trusted to be independent, predictive and reliable.”

The FHFA encouraged stakeholders to provide meaningful and detailed responses and to make those responses public whenever possible to inform broader public discourse on these issues.

To submit input on the subject, click here, and select Credit Score in the topic drop down box.

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