The Federal Housing Finance Agency (FHFA) is making progress on its alternative credit score model project, which part of the agency’s efforts to increase access to credit.
However, FHFA Director Mel Watt said any change to credit scoring will not happen until mid-2019, adding that any change before then would be a “serious mistake.”
“We have an obligation to get this right and we need more information to be able to do so,” Watt said in a speech before the National Association of Real Estate Brokers on Tuesday.
Watt said that while the project began by looking at the costs and operational impacts of various credit score options on Fannie Mae and Freddie Mac and the industry as a whole, other considerations came into play, such as the model’s effect on credit score market competition. As an example, Watt said that the FHFA is now looking into how competing credit scores would improve accuracy instead of contributing to competition for more customers. The agency has also since considered how credit-score companies are organized and how this affects competition.
“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,” said Watt.
Although most would like the FHFA to complete its project earlier than mid-2019, Watt said certain factors contributed to the agency’s decision to delay completing its evaluation.
“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. For this reason, any credit score model change would not go into effect before 2019 even if I announced a decision today,” Watt said. “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. Credit scores are only one factor the Enterprises use to evaluate loan applications and the enterprises currently use the same or even greater levels of credit data in their underwriting systems as the credit scoring companies use.”
To obtain more information for its model project, Watt said the FHFA will request input related to access to credit, costs and operational considerations, competition, and the use of competing credit scoring models in making mortgage credit decisions.