Consider this an open letter to Congress.
Dear Congress: The Equifax debacle is your signal to fast track housing reform.
This is the opportunity you’ve been waiting for. Never has there been more of a need to rework Fannie Mae and Freddie Mac, and no one wants this more than the great people who work there. Besides, the exposure of millions of hardworking Americans' credit score provides so much political willpower that you’re unlikely to get a shot like this again.
Plus, there’s an upside!
Just like with Wells Fargo, the Equifax debacle proves the Consumer Financial Protection Bureau is inadequately protecting consumers. If you’re lucky you can get a twofer here, Washington Republicans!
It’s been nearly 3 years since HousingWire first reported that Freddie Mac was looking into alternative credit scoring models. For 3 years, they’ve been asking for some help here, why not start now? Do you really want to wait another 3 years?
Banking analyst Christopher Whalen posted this great Op-Ed in The Institutional Risk Analyst about how this world is all connected.
“The three national credit bureaus or data “depositories” share a monopoly on individual credit reporting in the US. Yet as we’ve learned recently with Equifax, the depositories take no responsibility for protecting consumer data or even telling consumers when they have been compromised. Nor do the depositories take any responsibility for the accuracy of data gathered or how it is used, as with identity theft and credit fraud.
Because the GSEs require three credit reports for conventional and government mortgages, the depositories apparently decided to come together in an anti-competitive alliance to promote the new VantageScore as a way of displacing Fair Isaac Corp, publisher of the FICO score traditionally used to assess consumer credit.
By spending money on marketing and Washington lobbying activities, the three credit depositories have orchestrated a seeming groundswell of support for the VantageScore. But to us, the combination of the three data monopolies in the world of housing finance sure looks like anti-competitive behavior.”
While Whalen stops short of suggesting the GSEs shift from FICO to Vantage Scores, it does highlight a more important point that fintech today could arguably better vet consumers, and their ability to repay loan products, more effectively than any single, current credit model.
However, only a complete overhaul of the GSEs could actually address this, and force the hand of the Federal Housing Finance Agency when it comes to its slow-motion credit score reform.
In this case, enough options simply aren’t being explored, such as peer reviews of consumer behavior, physiological modeling, and exploration of predicted social media behavior is a known, quantifiable way to predict that same consumer’s behavior. It may sound like big brother is watching, but the truth is the large social media platforms, to which nearly all future homeowners are linked into, are already developing ways to deliver the products you want into your hands, based on who you are, not what third-parties say you are.
It’s time to accelerate this process, and for those companies, such as Equifax and Wells Fargo, that can’t even keep up with their own data, they need to be left behind.
It’s time to finally end the FICO monopoly, for once and for all. And to do that, we need Congress to act.
