As the regulator and conservator of Fannie Mae and Freddie Mac (the Enterprises) and regulator of the Federal Home Loan Banks, FHFA staff regularly evaluate complex issues and answer hard questions. The questions about whether to require the Enterprises to update their credit score requirements, and to which model or models, are among the most difficult we have faced.
The Enterprises currently use Classic FICO for product eligibility, loan pricing, and financial disclosure purposes. Both Enterprises also have automated underwriting systems (AUS), that allow them to evaluate mortgage applications even when a borrower does not have a credit score. While FHFA believes that it would be desirable to update the Enterprises' credit score requirement from the current Classic FICO standard, FHFA has not determined which credit score option should be adopted as a replacement. The credit scores being evaluated by FHFA and the Enterprises are Classic FICO, FICO 9 and VantageScore 3.0.
FHFA recently issued a Request for Input (RFI) to obtain public feedback about the operational and competitive considerations of changing the current credit score requirement. We are requesting feedback on the following options which are under consideration.
- Option 1 – Single Score: The Enterprises would require delivery of a single score – either FICO 9 or VantageScore 3.0.
- Option 2 – Require Both: The Enterprises would require delivery of both scores, FICO 9 and VantageScore 3.0. This would require policy decisions about how to treat borrowers with a credit score from one provider but not the other.
- Option 3 – Lender Choice on which Score to Deliver, with Constraints: The Enterprises would allow lenders to deliver loans with either FICO 9 or VantageScore 3.0. Lenders would have to choose one score or the other for a defined period of time (e.g., no less than 12 months). This would require policy decisions on the length of time a lender or correspondent would need to commit to a certain credit score. Additionally, policy decisions would need to be made on whether to require mortgage aggregators and brokers to adopt a single score approach or whether to allow them to aggregate loans underwritten with FICO 9 or VantageScore 3.0 scores.
- Option 4 – Waterfall: The Enterprises would allow delivery of multiple scores through a waterfall approach that would establish a primary credit score and secondary credit score. Where a borrower did not have a credit score under the primary credit score, a lender could choose to provide the secondary credit score. FHFA and the Enterprises would need to determine how a secondary credit score would interact with each Enterprise's AUS, including the ability to evaluate a loan application where a borrower does not have a credit score and how to apply the policy for manually underwritten loans.
The RFI contains further details on each of these options and other information about the larger context in which the options should be considered.
The RFI is open until March 30, 2018, and we encourage all interested parties to respond, in as much detail as possible, to the specific questions. FHFA will review all responses to the RFI, and FHFA plans to make a decision about the Enterprises' future credit score model requirements in 2018.
The credit score decision will impact the industry -- including borrowers, lenders, servicers, mortgage insurers, and investors -- for years to come. Your input will help inform FHFA's analysis on this important decision.
By: Robert M. Dunsky, Ph.D.
Principal Financial Engineer,
Office of Policy Analysis & Research
By: Elizabeth R. Spring
Senior Policy Analyst,
Office of Housing & Regulatory Policy