WASHINGTON—NAFCU and CUNA have each offered feedback to the Federal Housing Finance Agency (FHFA) on its proposal to amend several provisions in the Enterprise Regulatory Capital Framework (ERCF) for Fannie Mae and Freddie Mac.
“NAFCU generally supports the proposed amendments but urges the FHFA to swiftly implement the bi-merge credit report requirement and the median credit score calculation,” wrote NAFCU Senior Regulatory Affairs Counsel Aminah Moore. “NAFCU additionally urges the FHFA to implement a pricing specific adjustment of the base risk weight for mortgages originated by credit unions.”
In February 2022, the agency published a final rule to amend the ERCF by refining the prescribed leverage buffer amount (PLBA) and risk-based capital treatment of retained credit risk transfer (CRT) securitization framework for the GSEs. The new proposed rule includes modifications of certain provisions related to guarantees on commingled securities, multifamily mortgage exposures secured by properties with government subsidies, derivatives and cleared transactions, and credit scores.
In addition, these proposed amendments would clarify certain aspects of the ERCF and help to further align it with the risks faced by the GSEs.
“NAFCU appreciates the opportunity to comment on this proposed rule and applauds the FHFA for amending the ERCF as needed for proper capitalization of the GSEs,” concluded Moore.
CUNA’s Perspective
CUNA said it supports the proposed amendments, including its change to the determination of representative credit scores, but said it is concerned validations of the methods are based on Classic FICO credit scores instead of newly approved scores friendlier to lower-income borrowers.
“In general, credit unions expressed no concern about this approach regarding the Classic FICO score. However, credit unions did express concern that by averaging a borrower’s Classic FICO score with a FICO 10T or VantageScore 4.0 score the resulting average score may be misleading,” the letter reads. “Loans to borrowers whose creditworthiness is best captured through the FICO 10T or VantageScore 4.0 scoring models may appear to pose more risk than they actually do.”
The letter adds that FHFA’s validation study appears to have been performed solely using Classic FICO scores.
Validation Needed
“It is difficult to say whether the impact of average credit scores across models could be far more significant than the results of the FHFA’s validation as described in the proposal,” the letter reads. “The FHFA should validate this approach across all approved scoring models before implementing this approach.”
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