FHFA nixes more-inclusive credit-scoring models
WASHINGTON – July 24, 2018 – The Federal Housing Finance Agency (FHFA) today announced that it would not make a decision in 2018 about updating the credit score model used by Fannie Mae and Freddie Mac (the GSEs) as previously announced and, instead, is shifting its focus.
FHFA sets guidelines for Fannie and Freddie, including the criteria they must use to evaluate a homebuyer's creditworthiness. There were a number of new credit-scoring models, such as ones from Fair Isaac Corp. and VantageScore. The new models generally incorporated details that older models do not, such as whether more than the borrower would be contributing money toward the monthly mortgage payment.
Under its previous initiative (Conservatorship Scorecard Initiative), FHFA reached out to industry stakeholders, including lenders, mortgage insurers and investors, as well as consumer advocates. More than 100 stakeholders had responded to a Request for Input (RFI).
Instead of considering the new models, FHFA says it will now focus on implementation of Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (Public Law 115-174) enacted in May. The Act requires FHFA to define, through rulemaking, the standards and criteria Fannie and Freddie will use to validate credit score models.
"After careful evaluation, we have determined that proceeding with efforts to reach a decision based on our Conservatorship Scorecard Initiative process and timetable would be duplicative of, and in some respects inconsistent with, the work we are mandated to do under Section 310 of the Act," says FHFA Director Melvin L. Watt.
"In light of that, we are communicating to Congress that we are transferring our full efforts to working with the (GSEs) to implement the steps required under Section 310. These steps include developing a proposed rule, receiving and evaluating public comment on the proposed rule and issuing a Final Rule to govern the verification of credit score models."
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