WASHINGTON — Any change to the credit scoring models that Fannie Mae and Freddie Mac use will have to wait until 2019, Federal Housing Finance Agency Director Mel Watt said late Tuesday.
“Any credit score model change would not go into effect before 2019 even if I announced a decision today,” Watt said in prepared remarks before the National Association of Real Estate Brokers' annual convention in New Orleans.
The FHFA has made exploring alternative credit scores to increase access to the mortgage market for underserved communities a priority, but Watt said the FHFA must take its time.
“Two factors have led us to conclude that we have more time to complete our evaluation than almost everyone involved would like for us to take," Watt said. "First, based on the overwhelming feedback we have received from the industry, it is clear that it would be a serious mistake to change credit scoring models before mid-2019 when the Common Securitization Platform is fully operational and the enterprises implement the Single Security."
He added, “Second, we believe that, regardless of the decision we make on credit score models, the short-term impact on access to credit will not be nearly as significant as was first imagined or as the public discourse on this issue has suggested."
Sens. Tim Scott, R-S.C., and Mark Warner, D-Va., introduced a bill on Tuesday that would force the FHFA to create a process to validate and eventually accept additional credit scores beyond the FICO score Fannie and Freddie currently rely on. The legislation is also aimed at pressuring the FHFA to act on its own to consider credit scores that use other means to account for a consumers’ creditworthiness, including rent and utility payments.
But Watt pushed back, saying any such effort would also delay the development of the Common Securitization Platform, which will allow mortgage guarantors like Fannie and Freddie to issue a uniform security.
The FHFA “realized that much more work needed to be done on the cost and operational impacts to the industry," Watt said. "Given the multiple issues we have had to consider, this has certainly been among the most difficult evaluations undertaken during my tenure as director of FHFA.”
He also suggested that the guarantee fees that Fannie and Freddie charge could eventually increase to ensure the enterprises' stability. Watt suspended increases in guarantee fees after becoming director in 2014, but with the companies set to run out of capital by the end of the year because of a profit sweep to the Treasury, Watt is fearful that a housing market downturn could force the companies to ask the government for a capital infusion.
“We constantly monitor the level of guarantee fees and will certainly make adjustments if we think they are warranted,” Watt said. “In addition to the statutory responsibility FHFA has to ensure liquidity and access in the housing finance market, we also have the responsibility to ensure the safety and soundness of the enterprises. We are constantly balancing these statutory obligations. For now, I continue to believe that we have found the right balance.”