Federal Housing Finance Agency Says It Wants An Alternative To the FICO Credit Scoring System
Federal Housing Finance Agency Director Mel Watt is looking at an alternative to the FICO credit scoring system. Yet, he told the Mortgage Bankers Association not to hold their breath waiting for Fannie Mae and Freddie Mac.
Watt said that the Federal Housing Finance Agency is seriously considering moving beyond using only FICO credit scores.
Watt told the Mortgage Bankers:
I initially thought this decision would be relatively easy to make. After all, we all believe that competition is good. However, the more we looked into this issue, the more complicated it became.
Watt explained why the decision to move to alternative credit scoring models is complex. He used a series of questions to illustrate his point:
Do alternative credit scoring models actually increase access to credit by providing credit scores on more borrowers who are creditworthy 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 the accuracy of credit decisions and not just to a race to the bottom with competitors competing for more and more customers?
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 also said the announcement will be made next year. FHFA will also set an implementation date. However, implementation of the new system will be no sooner than the second half of 2019.
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