FHFA reverses course, will let VantageScore pitch model to GSEs

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The Federal Housing Finance Agency has retreated from an earlier proposal on third-party credit score models by allowing Fannie Mae and Freddie Mac to potentially use scores developed by VantageScore.

In a final rule published Tuesday in the Federal Register, the FHFA said all credit score developers can vie to compete with FICO scores. That deviated from a ruling by the agency last year that barred VantageScore from competing. The 2018 proposal said developers sharing common ownership with a consumer data providers had a conflict of interest.

The three major credit bureaus that co-own VantageScore lobbied heavily for FHFA removing that conflict-of-interest provision. The 2018 proposal had been issued under former FHFA Director Mel Watt, who was appointed in the Obama administration.

“Under the final rule, any credit score model developer is able to submit an application in response to a Credit Score Solicitation, provided it meets the other requirements,” the agency said in the final rule.

VantageScore has long sought to compete against FICO the dominant score used in the mortgage industry. Had the FHFA's initial proposal been adopted, VantageScore and others owned by consumer data providers would have been shut out of the GSE market.

"There now is a viable pathway for VantageScore and other new and innovative model developers to compete," Barrett Burns, VantageScore's president and CEO, said in a statement. "Competition is critical for markets to operate efficiently.”

The final rule establishes a four-phase process that outlines how Fannie and Freddie can solicit applications and assess credit score models used by developers.

The government-sponsored enterprises will conduct a credit score assessment to evaluate models for accuracy, reliability and integrity. A second "enterprise business assessment" will evaluate the potential impacts that a credit score model could have on the mortgage finance industry.

“One of my priorities is to ensure that the American people have a safe and sound path to sustainable homeownership, which requires tools to accurately measure risk,” FHFA Director Mark Calabria said in a press release.

The final rule will take effect in 60 days. The FHFA said it will begin a review of the materials the GSEs plan to use in the public solicitation process. Once the materials are approved, Fannie and Freddie will make details of the process publicly available.

The FHFA has not set a date yet for the initial solicitation period, which will be open for 120 days.

The third-party credit score rule implements the requirements of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.

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Credit scores GSEs Mark Calabria FHFA Fannie Mae Freddie Mac VantageScore Solutions FICO