The Federal Housing Finance Agency is suspending its ongoing review of new credit scoring models and will instead move forward with creating a regulatory framework for providers of alternative credit scores to apply and be evaluated for use by Fannie Mae and Freddie Mac.
A section of the regulatory reform bill signed by President Trump in May requires the FHFA to define, through rulemaking, the standards and criteria Fannie Mae and Freddie Mac will use to validate credit scoring models.
Before that legislation became law, the FHFA had begun evaluating whether it should require the agencies to switch to the latest scoring model from Fair Isaac Corp., FICO 9, and/or allow the use of competitor VantageScore's latest model, 3.0. The FHFA had given itself a deadline of the end of this year to decide on new scores.
Fannie Mae and Freddie Mac currently use the older FICO 5 model. VantageScore is a joint venture of the credit bureaus Equifax, Experian and TransUnion.
"After careful evaluation, we have determined that proceeding with efforts to reach a decision based on our Conservatorship Scorecard Initiative process and timetable would be duplicative of, and in some respects inconsistent with, the work we are mandated to do under Section 310 of the Act," FHFA Director Mel Watt said in a press release. "In light of that, we are communicating to Congress that we are transferring our full efforts to working with the Enterprises to implement the steps required under Section 310."
"These steps include developing a proposed rule, receiving and evaluating public comment on the proposed rule and issuing a Final Rule to govern the verification of credit score models," Watt continued. "Thereafter, we will follow through on the steps required to implement the new Rule."
More than 100 stakeholders had responded to the request for input on changing score models before passage of regulatory reform, the press release said. The regulator planned to issue a final decision on updating the credit score model in 2018.