October 16, 2023

Scott, Colleagues Press FHFA to Implement New Credit Scoring Models, Abandon Change in Report Requirements

Washington, D.C. – U.S. Senator Tim Scott (R-S.C.), Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, is leading a group of Banking Committee Republicans in calling on the Federal Housing Finance Agency (FHFA) to implement reforms to credit scoring models that will expand homeownership opportunities for creditworthy borrowers and make scores more predictive. Ranking Member Scott, along with Sens. Mike Crapo (R-Idaho), Mike Rounds (R-S.D.), Thom Tillis (R-N.C.), John Kennedy (R-La.), Bill Hagerty (R-Tenn.), Kevin Cramer (R-N.D.), and Steve Daines (R-Mont.), also pushed FHFA Director Sandra Thompson to abandon plans to transition from the current requirement that lenders provide credit reports from all three (tri-merge) national consumer reporting agencies (CRAs) to only two (bi-merge), arguing the move would negatively impact access to credit. Ranking Member Scott and his colleagues urged the FHFA to work with the private sector to ensure better coordination and data sharing during the transition to new credit scoring models.

In their letter, the senators write, “We write to express our concerns regarding the Federal Housing Finance Agency’s (FHFA) ongoing transition to and implementation of updated credit score models and credit report requirements for loans acquired by Fannie Mae and Freddie Mac (the Enterprises). The bipartisan Credit Score Competition Act was signed into law over five years ago…Section 310 established requirements for use of third-party credit scoring models by the Enterprises, updating their decades-old model and allowing for the inclusion of alternative data sources like rent, utility, and telecom bill payments. Including this alternative data into scoring models will expand homeownership opportunities for creditworthy borrowers and make scores more predictive.

The senators continued, “While FHFA’s announcement of implementation represented a positive step toward bringing more predictive data into the system, the Agency simultaneously announced that the Enterprises would be transitioning from the current requirement that lenders provide credit reports from all three (tri-merge) national consumer reporting agencies (CRAs) to only two (bi-merge). FHFA’s decision to implement the bi-merge would inherently result in incomplete data being reported to the Enterprises. This decision is seemingly at odds with the implicit goal of Section 310, which is to allow for consideration of more data to increase predictiveness of credit models.

They concluded, “We encourage you to abandon plans to transition from a tri-merge to the bi-merge credit report which run counter to the spirit of Section 310 and afoul of the traditional process for notice-and-comment rulemaking. Rather than increasing risk, FHFA should maintain the current timeline for implementation of the new credit scoring models five years since Section 310 was enacted.”

To read the full letter, click here.

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