FHFA Extends Deadline for Feedback on GSEs’ Use of Alternative Credit Scoring Models

The Federal Housing Finance Agency (FHFA) has extended the deadline for feedback on whether government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac should consider alternative credit scoring models beyond the current Classic FICO requirement.

The FHFA is “seeking input on all aspects of a potential change from the current Classic FICO requirement, including feedback on the operational and competition considerations of continuing to use a single credit score model or allowing the use of more than one credit score model,” it says in a release.

The original deadline for feedback was Feb. 20, but that has now been extended to March 30.

The FHFA is specifically considering whether Fannie Mae and Freddie Mac’s credit score requirements should include the newer FICO 9 and VantageScore 3.0 models.

The GSEs currently use Classic FICO for product eligibility, loan pricing and financial disclosure purposes.

During the Mortgage Bankers Association’s Annual Convention and Expo in October, Mel Watt, director of the FHFA, said that whether the GSEs should make use of alternative credit scoring models is a tough call.

“To fully analyze whether we should require the enterprises to update their credit score model requirements – including possibilities that would involve using more than one credit score provider – we’ve had to look at the issue from multiple angles,” Watt said. “For example, do alternative credit scoring models actually increase access to credit by providing credit scores on more borrowers who are credit worthy and able to pay a mortgage? How does this compare with the enterprises’ current ability to evaluate borrowers without a credit score?

“How do we ensure that competing credit scores lead to improvements in accuracy of credit decisions and not just to a race to the bottom with competitors competing for more and more customers?” he added. “What would be the implementation and operational costs to the enterprises, lenders and other industry participants of converting to an alternative credit score or a multiple-score system? Does the credit repositories ownership of one of the credit score providers present implications for long-term competition in the credit scoring market?”

Watt said, “The more we looked into this issue, the more complicated it became – and it is turning out to be among the most complicated decisions I have faced during my tenure at FHFA.”

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