Federal Housing Finance Agency Director Sandra Thompson is keeping her views on whether Fannie Mae and Freddie Mac should exit conservatorship and a decision on credit scoring models close to the vest.
“Ending conservatorships is not a quick action to undertake,” Thompson said in testimony Wednesday before the House Financial Services Committee. “There are capital targets that have to be met, other policy issues that have to be decided by other stakeholders — the U.S. Treasury, some with the Federal Reserve, and others.
“It’s not an easy or immediate process. We will do our best to make sure that when they do exit, they are in a good position financially and operationally.”
Thompson has previously said that Congress should figure out whether to end the now nearly 14-year conservatorship. But some argue the Housing and Economic Recovery Act of 2008 allows the FHFA to take action without Congress, and manage the GSEs under a utility model.
And although it has not stretched as far as GSE conservatorship, the FHFA’s review of alternative credit scoring models is now in its seventh year. Lawmakers asked Thompson when they could expect a final decision on whether the GSEs will update the credit scoring models they use.
Thompson did not budge on that topic, either, although she emphasized how costly it would be to make any changes to the credit scoring model the GSEs use.
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“We have not made a decision on the credit score model. Most mortgage participants have used the FICO classic model for the last 20 years,” said Thompson. “Updating the credit score model is a decision we take very seriously, because it will have significant operational and cost impacts even if we move from one credit score [model] to a new credit score [model], so we want to be very thoughtful.”
Democratic Rep. David Scott, of Georgia, asked Thompson what the FHFA was doing to address “inaccurate” and “distorted” appraisals of some manufactured homes.
Thompson said the issue with appraisals was brought to her attention while touring manufactured homes at a recent festival on the National Mall. Thompson said she would work with the GSEs to “see what flexibilities there might be in that particular situation.”
During the nearly five-hour hearing, Thompson also took the opportunity to again request that lawmakers give the FHFA the same oversight of enterprise third-parties that bank regulators have of bank service providers. Doing so would give it “parity with other financial regulators,” Thompson said.
“We believe persons and entities that provide services to our regulated entities, if there’s an issue that could impact safety and soundness of Fannie and Freddie, we want to have the authority to go in and take a look at the problem,” Thompson said.
FHFA has repeatedly asked Congress to give it the authority to examine third-party service providers. Thompson said that when she arrived at FHFA from the Federal Deposit Insurance Corporation, she was “surprised” that the FHFA didn’t have the same authority that agency has under the Bank Service Company Act.
That law subjects bank service providers to regulation and examination “to the same extent as if such services were being performed by the depository institution itself on its own premises.” It also mandates that banks promptly notify their regulator of new service provider agreements.
Among other updates for lawmakers, Thompson said that the holistic pricing review she promised in October 2021 would be “a priority for the enterprises for this year.”
“We have asked Fannie Mae and Freddie Mac to undertake a holistic pricing review, which would include loan level price adjustments, delivery fees and guarantee fees,” said Thompson. “We’re going to look at the submissions and take into consideration the impact pricing has on all different segments, including communities of color.”