“The validation and approval of Classic FICO by the enterprises allows them to continue supporting the mortgage market while assessing more modern credit score models that were submitted in response to the 2020 Joint Enterprise Credit Score Solicitation,” the FHFA announced.
The due date to validate the GESs’ existing credit score model was Nov. 20, 2020.
But as far as accepting any new credit models, the FHFA said that it expects it will take the enterprises an additional year to complete the validation and approval process of the remaining credit score models submitted in response to the solicitation.
“The validation and approval of the Classic FICO credit score model is an incremental step in meeting the requirements outlined in Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which stipulated a November 20, 2020 deadline for the enterprises to use a validated and approved credit score model,” the FHFA said in its release.
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The fight for enabling new credit scoring models for use by the government-sponsored enterprises has been years in the making. Back in August 2019, the FHFA announced that it will allow the GSEs to consider using any new credit models, including the long fought over VantageScore, as an alternative to their current FICO credit scoring model, a dramatic reversal from a proposed rule issued the year before. That is if these companies can get their models past the FHFA’s validation process.
In December 2018, the FHFA issued a proposed set of rules surrounding the adoption of alternative credit scoring rules. Most notable among those proposed rules was a provision that would have prohibited the government-sponsored enterprises from using the VantageScore credit scoring model because of conflicts of interest with the company’s backers.
And all of this came after several years of the GSEs looking at alternative models, but despite requesting input from interested parties on a possible change to its credit scoring models and even extending the deadline for feedback, the regulator eventually shut down its exploration of pushing past the classic FICO model.
Eventually, the FHFA laid out a rule that gives a four-phase process for the GSEs beginning to use an alternative credit scoring model:
- Solicitation of applications from credit score model developers
- Submission and initial review of submitted applications
- Credit score assessment
- Enterprise business assessment