Hello, LOs!
Today I'd like to break down an issue simmering over at the Federal Housing Finance Agency that could totally change credit scoring for mortgage borrowers.
The government sponsored enterprises currently use the FICO credit score model for mortgages they purchase, but that could change. In 2019, the FHFA embarked on a process to see if there is a feasible alternative. The main competitor for FICO is VantageScore Solutions, which is jointly owned by the three credit-reporting agencies, TransUnion, Experian and Equifax.
Initially, the FHFA would have excluded VantageScore because of its relationship with the three credit-reporting agencies, but it backed off of that. Since it issued its final rule in 2019, FHFA has been working through a process to see if using VantageScore would be feasible.
This week, I had a chance to catch up with VantageScore's new CEO, Silvio Tavares. He's obviously aware that reaching more borrowers is aligned with federal regulators' goals of expanding credit to underserved borrowers.
"It's also just good business," Tavares said. "There aren't a lot of asset-backed securities out there that give you access to socially inclusive investments like mortgages."
The FHFA has now reached the fourth and final part of the assessment, a process that has to be completed within eight months. Since the agency found VantageScore passed minimum accuracy requirements, the FHFA will now determine how the model would work within the GSEs.
The assessment includes how the model could impact fair lending, its potential competitive effects, an assessment of the model provider as a potential vendor, as well as how it could impact the mortgage finance industry and GSE operations and risk management.
Should the model be approved, VantageScore claims that it can score 96% of the adult population, including those who are deemed "credit invisible" by other credit-scoring models.
Have you given thought to the utility of using an alternative credit score that takes into account things like rental payments, or even cell phone bills? That's another thing that FHFA Acting Director Sandra Thompson suggested the GSEs may soon consider.
Have a good weekend!
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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