WASHINGTON—The Federal Housing Finance Agency is being urged in letters by CUNA and NAFCU to re-propose its rule for evaluating new credit scoring models for use by the government-sponsored enterprises (GSEs).
In its letter, NAFCU's Ann Kossachev said the trade group opposes the proposed rule due to concerns it prevents VantageScore and other model developers from submitting credit score models for consideration.
Kossachev, NAFCU's director of regulatory affairs, said the association is supportive of the FHFA's proposed structure for the validation and approval of credit score models. However, she argued that by re-proposing the rule the FHFA could "provide a more inclusive, fair process that has the potential to enhance the operations of the GSEs and encourage providers of credit score models to innovate, cut costs, and help more creditworthy consumers access the financing they need."
By excluding models from certain developers in this current rulemaking, Kossachev said the FHFA is limiting competition – which seems “contrary to Congress' intent” of the law – "based on poorly reasoned concerns about price fixing."
CUs Have Different FOMs
Highlighting that credit unions have different fields of membership limited by their charter type, Kossachev said NAFCU and its member credit unions "support flexibility to choose the credit score model that best accounts for the unique characteristics of their fields of membership."
"The FHFA should re-propose this rulemaking to permit competition among credit score models so that institutions like credit unions have enhanced flexibility to choose what works best for their geographic location and will help them to grow their lending while helping hardworking Americans in their communities attain access to credit," Kossachev wrote.
CUNA's Comment
Separately, CUNA expressed its concern that the proposed cost-benefit analysis is “far from adequate,” as it only vaguely mentions lender implementation costs as a factor for consideration.
“Ultimately, it is critical that the FHFA’s final rule strike the appropriate balance between increasing competition in the credit-score market, preserving competition in the lender market by not, unintentionally, decreasing smaller lenders’ access to liquidity from the secondary market due to increased costs, and ensuring both consumers and lenders have certainty and predictability about the use of credit scores in their conventional mortgage decisions,” the letter reads. “That balance can only be properly achieved by requiring a robust cost-benefit analysis that includes pricing impact on lenders,” the letter adds.”
CUNA said it believes that increased market competition in the credit-score industry could be beneficial to both consumers and lenders because it can improve efficiency, decrease pricing and potentially expand the market of consumers for mortgage products.
But CUNA also acknowledged that the frequent modification of the GSEs credit-scoring models or a requirement that they use multiple models at the same time could discourage competition in the lending market by increasing costs for smaller lenders less capable of quickly and cost-effectively absorbing those changes into their own underwriting systems.
Three-Year Effort
For the past three years, the FHFA had worked on an initiative to evaluate potential changes to the GSEs credit score requirements and issued a Request for Information (RFI) on the matter, but abandoned that initiative to work on implementing the requirements of S. 2155.
The Credit Score Competition Act (Section 310) of S. 2155 requires the FHFA to create a process for evaluating new credit scoring models for use by the GSEs – Freddie Mac and Fannie Mae. This process mandated that FHFA develop a proposed rule, receive and evaluate public comments and issue a final rule on how the GSEs will use more than one credit score model.