Credit Modeling and Scoring Innovation
It’s About More Than The Score
The Federal Housing Finance Agency (FHFA) is the conservator for Fannie Mae and Freddie Mac (the GSEs), who have reviewed current GSE credit score requirements to determine if they should update these requirements. Neither Fannie Mae nor Freddie Mac currently allows delivery of loans with a credit score other than the Classic FICO Score. Changes to GSE credit score requirements is a major issue not only for the entire U.S. mortgage lending industry and its suppliers and investors, but also for consumers that rely on credit scores to obtain credit and to monitor and improve their financial health.
However, major changes could be on the horizon. Following GSE analysis of credit scores produced by the Classic FICO, FICO 9 and VantageScore 3.0 models, on December 20, 2017, the FHFA issued a request for input (RFI) to collect feedback on how the industry could be impacted by changes to GSE credit score requirements. This is a positive development, because the center of the debate and discussion in the trade press has tended to focus on which score is better, or whether additional credit scores should be allowed for scoring residential mortgages. While the predictive value of the credit score itself is of course very important, it is only the tip of the iceberg with respect to the implications of changing credit score models for lenders, investors, guarantors, settlement service providers and IT solutions firms.