FHFA bi-merge credit transition challenges are ‘immense,’ housing orgs say

The bi-merge transition will have far-reaching impacts and significant costs, the groups say

The Federal Housing Finance Agency (FHFA) announced late last year that it is replacing the Classic FICO credit model used by Fannie Mae and Freddie Mac with the FICO 10T and the VantageScore 4.0 credit score models and outlined the timeline for implementation. But a coalition of 17 associations, led by the Housing Policy Council (HPC), is now asking for more time with the transition and highlighting the challenges related to it.

In a letter to FHFA Director Sandra Thompson, HPC and other organizations — including the Mortgage Bankers Association, the National Association of Realtors, the American Bankers Association and others representing lenders, servicers, consumer advocates, and mortgage insurers — highlight the issues related to the transition.

“[T]he transition, as outlined, will occur in a multi-stage process that does not adequately address the far-reaching impacts, significant costs, and immense operational complexity of the policy changes,” the letter states. “We write to urge FHFA to reformulate the proposed timeline to provide sufficient time and an adaptable structure that will permit stakeholder feedback to be considered and incorporated.”

Earlier this month, HPC also submitted a separate letter highlighting the potential issues. Both letters say that such a transition accounts for “one of the most ambitious projects ever undertaken within the housing finance system.”

“Fundamentally, our organizations are extremely concerned that the three-and-a-half-year timeline and process outlined threatens the stability of the housing finance system by not recognizing this reality,” HPC said regarding the letters. “Our letter asks FHFA to rewrite the proposed plan with a more flexible timeline and an adaptable structure that will allow regulators to truly hear and incorporate industry and advocate feedback.”

In a recent congressional hearing, Thompson fielded questions from members of Congress about the proposed change, which saw both Republican and Democratic politicians expressing concerns about what it could mean for those attempting to access mortgage credit.

“We endorse the position expressed in your recent testimony before the House Financial Services Committee that the credit score model ‘transition timeline must be flexible enough to incorporate testing and unexpected events, but also efficient enough to ensure that consumers, the Enterprises, and others benefit …’ [from the updated credit score models],” the letter states.

The organizations note their reviews of the proposed timeline have led to concerns that “the plan doesn’t include sufficient time, flexibility, or detail to effectively execute this extraordinary effort,” the letter said. “Further, the plan does not reflect an agile and iterative process to incorporate stakeholder feedback.”

The organizations make several requests of the FHFA in the letters, including that the agency provide “comprehensive, transparent, and iterative stakeholder engagement process;” that FHFA offers “robust” data transparency including long-term historical datasets related to the current tri-merge system; and that the implementation timeline be “recalibrated” to accommodate data analysis, modeling and a stakeholder engagement process to measure costs, complexity and consumer impacts from this transition.

“Without this type of coordination and concurrent adoption, there could be significant consumer confusion and operational backlog, should a prospective borrower change loan programs,” the letter notes.

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