Southeastern Evaluation Blog

The FHFA Needs Your Help
Southeastern Evaluation Team

The Federal Housing Finance Agency (FHFA) needs your help! It is asking all interested parties to provide insight into proposed changes to its credit scoring models.

As part of the agency’s 2015 and 2016 Scorecard 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.

According to the FHFA, the assessment was limited to third party credit score models available at all three national consumer reporting agencies… Experian, Equifax, and TransUnion. Also, the assessment was limited to mortgage loan applications received from lenders and mortgage loans acquired by the enterprises.

The credit score models independently analyzed by the enterprises are Classic FICO, FICO 9, and VantageScore 3.0. The Enterprises currently use Classic FICO for product eligibility, loan pricing, and financial disclosure purposes. In addition, the Enterprises have recently implemented changes that allow their automated underwriting systems to evaluate borrowers who do not have a Classic FICO credit score.

At present FICO (including Classic and V.9) is dominant, but VantageScore is increasingly popular though exact numbers are difficult to obtain.

As expected, VantageScore Solutions supports the agency’s actions saying the government needs to challenge FICO’s monopoly. “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…” said Barrett Burns, VantageScore Solutions president and CEO. “Monopiles never benefit markets or consumers and they create the opportunity for pricing power unchecked by competition.” However, FICO is also in support of the FHFA’s review saying that FICO 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. “This request for information is an important opportunity to ensure that 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.”

According to director Mel Watt, the FHFA has an obligation to get this right and says the FHFA needs more information to be able to do so. This Request for Information (RFI) provides background information about how credit scores are used, about how the credit score models are evaluated, and about the credit score model options under consideration.

“In issuing this RFI, FHFA hopes to obtain honest and reliable information and stakeholder feedback on the operational and competition aspects of changing Fannie Mae and Freddie Mac’s credit score requirements,” said FHFA Director Watt. “Responses to the RFI will provide important details on the complexities of this decision, which is why I encourage stakeholders to respond in the most meaningful way possible.”

Input to the RFI should be submitted electronically (select credit score in pull down) or via mail by February 20, 2018 to the FHFA, Office of Housing and Regulatory Policy, 400 7Th Street, S.W., 9th floor, Washington, D.C., 20219.