Coalition calls for more time to sort out credit score transition

A large consortium of groups in the home finance ecosystem has called for more deliberation in the Federal Housing Finance Agency's timetable for transitions to new consumer credit measures in the next two years.

Realtor, mortgage banking, depository, securities, community lending, building, insurer, credit union and fair housing groups called for more time due to operational complexities and their interest in reviewing historical data for the new methodologies the FHFA plans to use.

"The transition, as outlined, will occur in a multi-stage process that does not adequately address the far-reaching impacts, significant costs, and immense operational complexity of the policy changes," 17 groups led by the Housing Policy Council said in a June 22 letter to the FHFA.

The agency has planned to start the process in 2024, with the move from three to two merged credit reports beginning in the first quarter, and the transition away from an older score to more modernized options getting underway in the third.

Ideally, the FHFA was working to put the scores into use by the fourth quarter of 2025 but given the scant amount of information available now about what they'll need to do about now and then and it doesn't seem like enough time, according to the coalition.

"Credit scores in the last 30 years have become embedded in just a multitude of processes, decision-making and pricing for lenders, investors, insurers and servicers. There's just a lot that needs to happen in this timeline that's just missing," said Matt Douglas, vice president of mortgage policy at HPC, in an interview.

Some advocates of more modernized scoring models have said the FHFA's upgrade is overdue, noting that the new measures will afford some borrowers with less traditional payment track records access to mortgage credit they wouldn't have qualified for previously.

"The recent announcement from FHFA on its implementation timeline of the mandated use of VantageScore 4.0 provides a clear three-year roadmap for the industry to take action," according to an emailed statement from the provider of the credit metric.

"This lengthy phased approach is in addition to the new credit score model validation process the FHFA began four years ago in 2019," VantageScore added.

Nearly a decade has already passed "since Congress first enacted a law in 2018 requiring a process for validating and approving new credit score models for use in our housing finance system," the company said.

Meanwhile, industry groups who want more leeway say they need more time to analyze how the two modernized scores will compare to the "classic" one the industry has traditionally used in submitting loans to Fannie Mae and Freddie Mac.

The coalition's letter asks for information that can be used to create a track record for the three scores and calls for a timeline that accommodates a "stakeholder engagement process that considers the costs, complexity, consumer impact, and policy implications of the transition."

"We think it is essential that stakeholders be provided with extensive data sets," the HPC said in a more detailed letter it sent to the FHFA earlier that represented only its own views.

The Housing Policy Council would like to see a process applied to the credit score transition that's similar to either the one used for the single security or the move away from Libor, which had longer-term and more granular roadmaps.