WASHINGTON – The Federal Housing Finance Agency appears to be on course to decide next year whether Fannie Mae and Freddie Mac should update their credit scoring models.

The agency initiated a process in early 2015 for reviewing the credit scoring models offered by Fair Isaac Corp. and VantageScore. Based on that review, the FHFA and the government-sponsored enterprises want to conclude their assessment of alternative or updated credit score models in 2016 and "as appropriate, plan for implementation," according to an FHFA Scorecard released last week.

"The GSEs' process of evaluating competing scoring models for potential adoption is already well underway," according to Joanne Gaskin, senior director for scores and analytics at FICO. "They intend to bring this to a conclusion in 2016."

Fannie and Freddie currently rely on the FICO 4 credit scoring model that was first released in 2004. The most recent model FICO 9 was released in late 2014.

The number of consumers that can be scored by FICO 9 is not much higher than FICO 4, but the more recent model is more predictive when it comes to scoring borrowers that can manage debt.

"A more predictive score will tend to allow lenders to be able to underwrite more consumers," Gaskin said. "So there is an opportunity for more consumers to either be approved or qualify for better terms."

Today, most lenders use FICO 4 or FICO 5 in delivering loans to the GSEs via their automated underwriting systems.

The GSEs are taking a "good hard look" at VantageScore 3.0, which was launched in 2013, according to Barrett Burns, the chief executive of VantageScore.

"Our request of them is to allow competition and specifically to allow lenders to use either FICO or us," he said in a recent interview.

In making its decision, the FHFA will consider the costs and effort it will take for the GSEs and lenders to transition to a newer FICO model or to VantageScore.

"Migration to any new model will be costly, complicated, and will take considerable time for Fannie Mae, Freddie Mac, and lenders of all sizes to implement," an FHFA spokesman said. "For these reasons, we are continuing to talk with a broad range of stakeholders including lenders, consumer groups, investors and credit score modeling companies."

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