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Competition Among Credit Score Models Being Considered

Posted by Lori Rezac on Aug 7, 2017 12:13:24 PM

lori_8-7-17.jpgThere has been quite a bit of talk lately regarding different credit score models and if the mortgage lending industry should allow more than just the traditional FICO.  In the past, many have questioned the accuracy of the FICO, partially due to the complexity of the calculation.  A bill has been introduced in the Senate to address these concerns, called the “Credit Score Competition Act”. 


The bill, sponsored by Sens. Tim Scott, R-South Carolina, and Mark Warner, D-Virginia, would allow the Federal Housing Finance Agency to give Fannie Mae and Freddie Mac the ability to approve and validate alternative credit scoring models when they purchase a mortgage.  This would introduce competition among the credit score models, hopefully leading to a more transparent credit scoring system. If a consumer understands how their credit score is derived, they can work to improve it.


The current model does not consider rent, utility, and cell phone bill payments which “disproportionately hurts African-Americans, Latinos, and young people who are otherwise creditworthy,” said Scott. This bill aims at making the system fair for everyone, making credit available to those that would otherwise be denied.


While the bill awaits further movement, Federal Housing Finance Agency Director Mel Matt expressed his concern with alternative credit scoring models during his speech at the National Association of Real Estate Brokers’ 70th Annual Convention. 


He explained that any change from the traditional FICO system would be a mistake before mid-2019.  This date marks when the Common Securitization Platform would be fully operational and the Single Security will be implemented.  He also noted the short term impact to credit availability would not be as significant as first expected. 


Credit scores are one of many factors used in determining eligibility for a mortgage loan, he said, “Enterprises currently use the same or even greater levels of credit data in their underwriting systems as the credit scoring companies use.”

As for any possibility of the “FICO monopoly” being put to an end anytime soon, it looks like we are going to have to wait a few years.


Competition for FICO being considered

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