If it would qualify millions more deserving Americans for home loans, shouldn’t Fannie Mae and Freddie Mac – the nation’s largest purchasers of mortgages – consider multiple credit scoring models? That’s the suggestion of the Credit Score Competition Act of 2015, legislation that would widen opportunities for homeowners who may otherwise be shut out of the housing market.
How It Works Today
Currently, FICO is the only credit scoring model used by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to rate borrowers. What’s worse is, they’re using an old version – FICO 4, which predates the housing crisis. Meanwhile, the credit scoring model has updates as high as FICO 9.
How the Credit Score Competition Act of 2015 Would Change Things
On December 9, 2015, Rep. Ed Royce, R-CA., and Rep. Terri Sewell, D-AL., introduced the Credit Score Competition Act of 2015 to the House of Representatives.
If passed, this legislation would allow Fannie Mae and Freddie Mac to consider alternative scoring models, like the VantageScore, for example. That’s not to say they would scrap FICO altogether, only that they would consider credit worthiness as determined by multiple sources.
HousingWire reports, “According to Royce and Sewell, allowing Fannie and Freddie to make mortgage purchasing decisions with access to ‘multiple empirically derived, statistically sound credit scoring models’ alleviates some of the risk in their portfolios and lowers the chance of systemic risk to the housing market.”
Credit reporting bureau Experian – which uses the VantageScore – weighed in on the subject:
“In addition to limiting innovation that could help boost consumer access to credit, the continued reliance on a single credit score model by the GSEs presents substantial risks to industry, their regulators, consumers and the economy as a whole.
“Using newer credit score models like VantageScore 3.0 would provide for greater predictability given the expanded data available. It would reduce the both the operational and credit risk of the GSEs.”
Presumably, this legislation would also allow Fannie Mae and Freddie Mac to use the most updated version of FICO.
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