FHFA seeks input on Fannie and Freddie's credit score models

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WASHINGTON — The Federal Housing Finance Agency is seeking input on whether Fannie Mae and Freddie Mac should upgrade their credit score models.

The two government-sponsored enterprises have relied on the “classic” FICO credit scoring model for the past 12 years.

But the FHFA is weighing whether the GSEs should upgrade to more recent alternatives, such as FICO’s newer scoring model known as FICO 9, or the VantageScore 3.0 credit scoring model, or both.

The deadline for submitting input to the GSE regulator is Feb. 20.

In soliciting public feedback, the GSE regulator noted that the Classic FICO model "adequately predicts risk" while the newer models "provide a slight increase in accuracy, which would benefit borrowers and investors."

The FHFA pointed out that the new FICO and VantgageScore models “incorporated economic changes since the financial crisis” and also include the rental history of mortgage applicants when reported to the credit rating agencies.

“FHFA recognizes that there are compelling reasons for the Enterprises to update their credit score requirement from Classic FICO,” the agency said.

In the new score models, medical collections are now treated differently than other types of debt "resulting in medical debt having less of a negative impact than with Classic FICO," according to FHFA's request for input.

In soliciting the information, "FHFA hopes to obtain honest and reliable information and stakeholder feedback on the operational and competition aspects of changing Fannie Mae and Freddie Mac’s credit score requirements,” said FHFA Director Mel Watt in a press release. “Responses to the RFI will provide important details on the complexities of this decision, which is why I encourage stakeholders to respond in the most meaningful way possible.”

VantageScore welcomed the FHFA's efforts to seek feedback on upgrading the credit score models.

“FHFA’s request for input is a step forward towards creating a marketplace where credit scoring models can be judged on their predictiveness, innovation and inclusivity instead of the status quo where the government has created a de facto monopoly for FICO,” Burns said in a statement Wednesday.

Yet a spokeswoman for FICO also praised the FHFA's move.

“We appreciate the thoughtful and deliberate process the FHFA is undertaking to examine the implications of proposed changes to credit policies in the $2 trillion mortgage market," according to Joanne Gaskin, senior director of scores and analytics at FICO.

"We share Director Watt’s concerns about the potential consequences of adopting a two-score approach to underwriting conforming mortgages."

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GSEs Credit scores Mel Watt FICO VantageScore Solutions FHFA Fannie Mae Freddie Mac