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FHFA Credit Changes Could Expand Homeownership

With the Federal Housing Finance Agency (FHFA) currently considering changing the credit score requirements for Fannie Mae and Freddie Mac, representatives from both FICO and its potential competition have been weighing in on the potential changes.

In late December, the FHFA issued a Request for Input, seeking feedback about the possibility of changing the credit scores the GSEs requires lenders to use to evaluate borrowers. According to the FHFA’s December press release, “The Enterprises currently use Classic FICO for product eligibility, loan pricing, and financial disclosure purposes.” The Request for Input seeks public comment on the possibility of allowing the GSEs to also let lenders use FICO 9 (an updated version of FICO’s original scoring algorithm) or VantageScore 3.0 (a rival model developed by credit reporting agencies Equifax, Experian, and TransUnion).

Those critical of the GSEs’ current requirements claim that they bar millions of Americans from home ownership. According to a 2015 Consumer Financial Protection Bureau study, 26 million Americans do not have any credit record, and another 19 million have credit records considered unscorable due to insufficient credit history or a lack of recent credit history.

As reported by Financial Times, VantageScore said in a public statement that “Monopolies never benefit markets or consumers and they create the opportunity for pricing power unchecked by competition.”

FICO Senior Director Joanne Gaskin replied, saying, “FICO welcomes competition—we just want to have fair competition.”  Read More