MBA, Trade Groups Ask FHFA to Expand Credit Models

The Mortgage Bankers Association and more than a dozen trade associations asked the Federal Housing Finance Agency to expand use of alternative credit scoring models at Fannie Mae and Freddie Mac (

The coalition noted increasing competition in credit scoring models has the potential to improve access to sustainable and affordable credit, as well as to combat the steady decline in homeownership that has been particularly acute among low- and moderate-income and minority consumers.

“FHFA’s effort to expand the use of alternative credit scoring models is a critical component to reversing the steady decline in homeownership particularly for low- and moderate-income as well as minority consumers,” the letter said.

The letter noted FHFA announced more than three years ago its initiative “to increase mortgage credit for creditworthy borrowers, consistent with the full extent of applicable credit requirements and risk-management practices.” However, despite the growth in alternate credit score models as a key element in determining how to make increased mortgage credit available to creditworthy borrows, FHFA Director Mel Watt last week conceded that expansion of GSE credit score models would not take place until 2019 at the earliest.

“The additional delay in implementation timeline comes after nearly three full years of internal review and assessment on part of the GSEs to see if added competition and critical updates to the credit models would increase access to homeownership,” the letter said. “We were dismayed to hear about this significant push back of the timeline, and we would like to request a meeting with you to explore the factors contributing to the delayed implementation.”

Credit scoring has become a hot and controversial topic in recent years. Fannie Mae and Freddie Mac adopted credit scoring models from FICO (formerly Fair, Isaac and Co.) in the mid-1990s. Since then, other competitors, such as Vantage Score Solutions, have introduced models designed to provide credit ratings previously deemed “unscoreable” under FICO models. Some members of Congress and housing advocates have criticized the models used by Fannie Mae and Freddie Mac as outdated and obsolete.

Despite FHFA studies examining the possibility of updating and expanding GSE credit scoring, no changes have been mandated before 2019; FHFA cites costs and investor concerns. Last week, Watt told Washington Post columnist Kenneth Harney any abrupt changes from the current technologies used by the GSEs would be a “serious mistake” and that competing credit scores could result in “a race to the bottom with competitors competing for more and more customers.”

MBA has called for updates to credit scoring models, most notably in its recent GSE reform proposal (, with the objective of leveraging changes in technology, data and analytics to assess the creditworthiness of a larger segment of the population, including those with “thin” credit files.

Joining MBA in the letter: America’s Homeowners Alliance; the Asian Real Estate Association of America; the Community Mortgage Lenders of America; the Consumer Federation of America; the Community Home Lenders Association; the Community Associations Institute; Leading Builders of America; the National Association of Realtors; the National Association of Hispanic Real Estate Professionals; the National Association of Home Builders; the National Fair Housing Alliance; the National Urban League; the National Community Reinvestment Coalition; the Real Estate Services Providers Council Inc.; and The Realty Alliance.