FHFA Re-Assures MBA, Trades’ Concerns over New GSE Credit Score Requirements

Following concerns expressed in a May 13 letter, the Federal Housing Finance Agency assured the Mortgage Bankers Association and other industry trade groups that industry stakeholders such as themselves would have sufficient time to implement necessary system and process changes that any updates to Fannie Mae and Freddie Mac’s credit score requirements would entail.

In a June 20 letter to MBA, the American Bankers Association, the Housing Policy Council, Independent Community Bankers of America, Securities Industry and Financial Markets Association, the Structured Finance Association and U.S. Mortgage Insurers, FHFA Acting Director Sandra Thompson said FHFA would provide sufficient time and transparency, as well as additional data, to stakeholders regarding any changes and updates to the GSEs’ credit score requirements.

“Your organizations raise important points about the need to provide industry stakeholders with sufficient data to understand the credit score models, the processes that govern their use, as well as sufficient time to implement the necessary system and process changes that any updates to Fannie Mae and Freddie Mac’s (the Enterprises) credit score requirements would entail,” Thompson wrote. “Such considerations are critical to the implementation of any new credit score approach. FHFA and the Enterprises are committed to continuing our extensive engagement with stakeholders as we plan for and implement any credit score requirement updates.”

In the May 13 letter, MBA and the trade groups expressed concerns that its members would not have adequate or complete information to adapt to changing GSE credit score models and their processes.

“Success requires that the market has an understanding of the credit score models, the processes that govern their use, and sufficient time to implement necessary system and process changes,” the May 13 letter said. “Those putting their capital at risk originating, insuring, or investing in mortgages need adequate insight to project performance, as this capability is a core component of a highly liquid secondary mortgage market. This liquidity, in turn, translates into significant benefits for consumers in terms of lower mortgage costs and greater availability of credit, which we all wish to preserve and enhance. To advance these goals and achieve these outcomes, we urge FHFA to engage in careful communication and planning to maintain lender and investor confidence through the transition to any new score or system of scores.”

In her reply, Thompson said following an Agency decision on updating the Enterprise credit score requirements, FHFA would establish a planning period in preparation for implementation of the final FHFA determination.

“During the planning period, we expect to gather additional feedback from stakeholders,” Thompson wrote. “We also anticipate implementation to take 18 to 24 months if moving to a new single credit score environment and at least 36 months for a multi-score environment. FHFA and the Enterprises understand that in order to support a successful transition, industry participants will need to understand the relationship between Classic FICO and the new credit score(s) to perform their own testing and analysis. We are evaluating the information requirements of the various stakeholders including how such information could be made available.”

Thompson also emphasized FHFA is “committed to providing transparency on how any new credit score(s) would affect borrowers and industry participants.”