FICO (Fair Isaac Corporation) has announced that they are making a change to their popular credit scoring system. The new product, called “FICO Score 9”, has tweaked the program as a way to assess consumer collection information, bypassing paid collection agency accounts and differentiating between medical and non-medical collection agency accounts. Medical collection accounts have been found to not be nearly as detrimental in determining credit worthiness as other collection accounts, hence some consumers could see a credit score jump of 25 points or more, meaning more prime borrowers for mortgage lenders. The last hurdle for the credit scoring change is that Fannie Mae and Freddie Mac must make the change to their underwriting systems for it to become fully adopted in the mortgage marketplace.
Mel Watt, director of the Federal Housing Finance Agency (FHFA), has announced a proposal for a single securitization platform for Fannie Mae and Freddie Mac. FHFA, who is the conservator for the GSEs, has proposed to take existing characteristics of both Fannie Mae’s and Freddie Mac’s current securities, and combine them to make a “Single Security”. This would be a major step in simplifying the secondary market in preparation for a time of a life without the GSEs. The FHFA’s purpose in releasing the proposal is to seek input from the public on the plan and its structure. FHFA released four specific questions that it is seeking feedback on. Those questions are:
- What key factors regarding TBA eligibility status should be considered in the design of and transition to a Single Security?
- What issues should be considered in seeking to ensure broad market liquidity for the legacy securities?
- As discussed above, this is a multi-year initiative with many stakeholders. What operational, system, policy (e.g., investment guideline), or other effects on the industry should be considered?
- What can be done to ensure a smooth implementation of a Single Security with minimal risk of market disruption?