Credit-scoring agencies slam FHFA's hold on scoring model

The agency's decision about a new credit-scoring model for Fannie and Freddie, due this year, has been back-burnered

By Ryan Smith

24 Jul 2018

The Federal Housing Finance Agency has announced that it will not make a decision this year about updating the credit-score model used by Fannie Mae and Freddie Mac – a decision that the major credit-scoring agencies aren’t happy with.

In December, the FHFA requested input about a possible change to its credit scoring model, sparking a competition between FICO and VantageScore Solutions for the agency to use their models. The FHFA said that in the time it has been considering the change, it “has done significant outreach to industry stakeholders, including lenders, mortgage insurers and investors, as well as consumer advocates.” The agency had previously announced that it would make a decision on a possible new scoring model this year.

That decision is now back-burnered for the foreseeable future, according to FHFA Director Melvin Watt.

The FHFA will instead shift focus to the implementation of Section 310 of the Economic Growth, Regulatory Relief and Consumer Protection Act. The act requires the FHFA to make rules defining the standards the GSEs 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,” Watt said. “In light of that, we are communicating to Congress that we are transferring our full efforts to working with (Fannie and Freddie) to implement the steps required under section 310.”

Barrett Burns, president and CEO of VantageScore Solutions, said the FHFA’s decision to halt its credit score model update was “disappointing,” and that deserving applicants are being locked out of homeownership under the current model.

“After five years of examination and three years of inclusion in its 2018 GSE Scorecard, it is disappointing to learn that FHFA will not meet the deadlines prescribed by Congress to implement a system that will bring the benefits of competition to the mortgage market,” Burns said in a statement to MPA. “Model validations and an industry comment period have already occurred, and therefore FHFA should move ahead more expeditiously. With every day that passes, mortgage applicants are mispriced, locked out and discouraged from pursuing homeownership. We look forward to continuing to work with FHFA and the enterprises to implement more modern, precise and inclusive scoring models consumers deserve.”

FICO agreed that “a competitive review” of the credit-scoring model was essential.

“It is unfortunate there’s been a delay to the review process,” the credit-scoring agency said in a statement to MPA. “We continue to support a competitive review of credit scoring and plan to actively participate in the new FHFA credit score application process, to ensure that lenders, consumers and taxpayers benefit from the independence, reliability and innovation that the FICO Score provides.”