The Federal Housing Finance Agency (FHFA) has announced additional opportunities for ongoing public engagement to facilitate the transition to updated credit score models and credit report requirements for loans acquired by Fannie Mae and Freddie Mac (GSEs). This engagement, which will include stakeholder forums and listening sessions, will allow for identification of a wide variety of issues, opportunities, and challenges related to successful implementation of the new requirements, including potential refinements to the timeline for adoption.
“This engagement process represents the next logical step in our efforts to ensure robust public input as we work towards implementing the new credit score requirements at the Enterprises,” said FHFA Director Sandra L. Thompson. “We want to hear from market participants and impacted stakeholders to ensure a smooth transition that minimizes costs and complexity.”
In October 2022, FHFA announced the validation and approval of both the FICO 10T and VantageScore 4.0 credit score models for use by the GSEs. The announcement followed a lengthy process of reviewing potential updates to the GSEs’ credit score requirements, as required by statute and regulation. During this time, the GSEs undertook rigorous testing of the models for which an application was received. Both of the newly approved models exceed the required thresholds for accuracy, reliability, and integrity. Following an extensive implementation process, the GSEs will require scores from both models, when available, on all single-family loans they acquire.
“FHFA’s reformulated implementation plan is an acknowledgment of the significant operational complexities and the magnitude of this effort on the housing finance system, consumers, and investors of mortgage assets. MBA has advocated for a longer implementation timeline, and we appreciate FHFA taking our recommendations to heart,” said Bob Broeksmit, CMB, President and CEO of the Mortgage Bankers Association (MBA). “A comprehensive and collaborative process is necessary for these efforts to succeed, and it’s our hope that the stakeholder forums announced today will lead to sufficient time for robust data transparency and more opportunities to provide feedback. We continue to support FHFA’s efforts to ensure better competition in the credit scoring space and will work with them to ensure unintended consequences are mitigated and that costs, complexity, consumer impact, and policy implications are taken into consideration.”
In October 2022, FHFA also announced that the GSEs would transition from a tri-merge requirement, in which credit reports are required from all three nationwide consumer reporting agencies, to a bi-merge requirement, in which credit reports are required from at least two of these agencies. FHFA expects this update will promote competition in the market while maintaining the information needed to support robust risk management. FHFA further expects that the implementation date for this bi-merge requirement will occur later than the first quarter of 2024, as was initially proposed.
“USMI applauds FHFA and Director Thompson’s responsiveness to concerns regarding the implementation of new credit score models and credit report requirements for mortgages acquired by the GSEs,” added Seth Appleton, President of U.S. Mortgage Insurers (USMI). “The private mortgage insurance (MI) industry has served as an accessible route to homeownership for millions of home-ready borrowers over the past 66 years, and USMI’s members welcome robust engagement with FHFA, the GSEs, lenders, and other industry stakeholders to ensure a smooth implementation that promotes efficient market operations, supports borrowers’ continued access to mortgage financing, and protects taxpayers from undue credit risk.”
Interested parties who wish to participate in the process of commenting on the FHFA should send their name, affiliation, and contact information to [email protected]. FHFA expects to provide further details to participants and hold initial sessions in the coming weeks. Those who wish to participate in the initial sessions should respond by September 25, 2023.