Freddie Mac Chief Risk Officer Anil Hinduja has left the government-sponsored enterprise and his responsibilities have been handed to another executive in a move that could have implications for credit modernization.
John Glessner, a longtime executive vice president who heads up Freddie's investments and capital markets division, now jointly holds the title of CRO for no additional compensation, according to a securities filing. The move follows
The chief risk officer's oversight extends to the modernization of loan pricing and scoring, which the GSEs' oversight agency has been accelerating, so the handoff could affect how quickly these efforts move forward.
While credit modernization has been vetted by multiple administrations and career staff like Glessner, there has been some external concern about managing the risk of pricing loans based on
"It virtually guarantees the GSEs will not only be exposed to higher credit risk but will also not be collecting sufficient fees to compensate," Clifford Rossi, professor-of-the-practice emeritus at the University of Maryland's business school, in a social media post on LinkedIn.
Rossi formerly served as CRO during the financial crisis for Citi, Washington Mutual and Countrywide and prior to that served as senior director of single-family risk management at Freddie.
A spokesperson for the GSE's oversight agency had not immediately responded to an inquiry about risk management related to the unified pricing grid at the time of this writing.
The unified pricing removed a previous requirement for loans with VantageScore 4.0 to be on a scale 20 points higher to get the same price as the traditional FICO measure. Removing this has encouraged lender use of the former metric and made the two scores more competitive.
Around 5% of new GSE loans have been delivered with VantageScore 4.0. The GSEs primarily use external credit scores for pricing and internal credit models for underwriting.
How a CRO with broader oversight of capital markets and investments will view credit modernization remains to be seen, with potential for either a faster or slower approach as the GSE oversight chief Bill Pulte
The tri-merge is controlled by the three major credit bureaus who are behind VantageScore, and trade groups that represent them like the Consumer Data Industry Association have argued that reducing the number of reports could be risky given differences in their data.
S&P Global Ratings analysts have considered the differences relatively minor. They also have been looking closely at VantageScore 4.0 and considering how to assess its risk as the enterprises often set trends the private residential mortgage-backed securities market follows.
Those analysts said at a recent conference in New York that
The rating agency's analysts found numbers below that level for 4.0 and 10T generally align with higher FICOs, and when the modernized metrics are above 647, they needed to make deductions.
"The impact on RMBS credit is manageable, but it's manageable when thoughtful mapping is applied," Vanessa Purwin, co-head of U.S. residential mortgage backed securities ratings, said at the Americas Structured Finance conference.
Further adjustments may need to be made for the possibility of lender choice in scores potentially inflating values, S&P Global Ratings analysts said, noting that they would be looking for additional context in any transaction reliant exclusively on VantageScore or 10T to assess this.
Generally classic FICO has been submitted alongside new scores in private RMBS deals.
Purwin said it is her personal opinion, not necessarily S&P's, that this will change.
"I think that we'll see in the not too distant future a transaction with loans scored 100% by one of these alternative scoring models," she said. "These new models have positives, they provide a
