On the last day to submit comments about credit scoring to the Federal Housing Finance Agency, the Mortgage Bankers Association sent in a letter calling for more competitive credit score requirements.
Back in December, the FHFA requested input from interested parties on a possible change to its credit scoring models. The credit score models being analyzed are Classic FICO, FICO 9 and VantageScore 3.0.
There are also several scenarios Fannie Mae and Freddie Mac could use including choosing just one score model out of those mentioned above, requiring both FICO 9 and VantageScore 3.0 on every loans, lender choice on which score to deliver and allowing for the delivery of a primary and secondary credit score. To ready more about those choices, click here.
Originally, the deadline for industry participants to provide feedback on the credit score issue was Feb. 20, 2018. However, this was later moved up to March 30, 2018.
On the last day to deliver input to the FHFA, the MBA submitted a letter to the agency, urging the FHFA and the GSEs to adhere to several principles it laid out with respect to the new credit score requirements.
“While credit scores play only a limited role in the underwriting process for loans acquired by the Enterprises, their impact on borrower eligibility and loan pricing warrants periodic review,” MBA President and CEO David Stevens wrote in the letter. “Given that any changes to the existing Enterprise requirements would entail operational challenges that bring with them additional costs, it is important to understand what can be gained from such changes.”
Here are the credit score requirements the MBA outlined in its letter:
Any decisions regarding existing credit score requirements should be data-driven and analyzed thoroughly.
Any accepted credit scoring models, regardless of provider, should be subject to frequent, rigorous testing of their predictive capacity by FHFA and the GSEs.
Competitive forces typically produce better results in the market by stimulating innovation and lowering costs; therefore, changes to the existing requirements, as well as the review process for future changes, should extract the benefits of competition in credit score modeling.
The regulatory system governing credit scoring models should be structured to incentivize ongoing efforts to improve predictive capacity and reliability throughout the credit cycle. Other objectives, such as expanded consumer access to credit, should also be pursued so long as they do not compromise predictive capacity and reliability.
Current efforts that are focused on data provided by the national credit reporting agencies, Equifax, Experian and TransUnion, should not displace or otherwise discourage efforts focused on the use of additional data sources, such as telecommunications, rent or utility payments.
The FHFA and the GSEs should abide by transparent processes for maintaining and changing the GSE credit score requirements. Such processes should include regular communication with a wide variety of mortgage market participants.
In the 2017 scorecard report, the FHFA announced it expects to make a decision on which new model and process it will implement at some point in 2018.
However, FHFA Director Mel Watt previously explained a change in the credit scoring system before mid-2019 would be a serious mistake. He explained more work needs to be done on the operational impacts of the industry, and stressed that this task has been one of the most difficult evaluations undertaken during his tenure as director of the FHFA.
Both FICO and VantageScore Solutions have expressed their support for the FHFA’s actions, and have each explained why their product will be better for the mortgage industry. Read about VantageScore’s viewpoint here, and FICO’s here.