Credit modernization put on hold as FHFA leadership changes

The Federal Housing Finance Agency announced Thursday that it changed the fourth-quarter implementation date for credit score modernization at major government-related mortgage investors ahead of a change in leadership.

The end date for the initiative that would have moved Fannie Mae and Freddie Mac away from a "classic" metric toward more advanced models from two providers now is "to-be-determined" due to industry feedback, according to the latest revision of the FHFA's dynamic timeline.

The change, which arrived as President-Elect Donald Trump announced in a Truth Social post that he would nominate Pulte Capital Partners executive Bill Pulte to head the FHFA, suggests that it's likely that the initiative will be delayed or possibly discontinued.

The change in the implementation date impacts the planned addition of an option to allow lenders to submit two rather than three credit reports in addition to a move to more modernized credit metrics offered by FICO and VantageScore.

Some stakeholders and pundicts have forecast credit score modernization would continue after Washington changed hands given the original legislative mandate behind it was bipartisan, the industry's already invested heavily in it, and it's a business trend in other consumer finance sectors.

However, given both the president-elect and Congress moving to a regime controlled by Republicans signaling interest in widespread housing reform, including removing Fannie and Freddie from a government conservatorship, others think the powers-that-be will put the move on hold.

While mandated use of advanced scores by Fannie and Freddie was considered likely to increase industry use, taking their implementation off line wouldn't necessarily stop their use in the smaller private market, where they've been increasingly adopted.

Although Fannie and Freddie currently control a significant portion of the mortgage market, they didn't always. Prior to conservatorship, the private market was more dominant, a trend that ended when a collapse generally attributed to insufficient regard to ability-to-repay in lending occurred.

The two government-sponsored enterprises went into conservatorship due to pressures from the crash and have remained there even though lenders now have ATR responsibilities and the enterprises have regained profitability and worked to build stronger capital reserves.

Credit score modernization is aimed at finding nontraditional ways to assess the ability-to-repay of borrowers in ways aimed at safely making more performing loans, something that's been attractive to the industry in some respects given recent volume shortages.

However, the industry and resellers that serve it have been protesting growing costs for credit assessments. 

There has been debate over whether the complications involved in setting up systems to handle the option of buying two rather than three credit reports would be worth it or not. 

Advanced credit scores have been used more broadly in the auto lending and credit card markets, where they are employed in a different manner than the idiosyncratic mortgage industry.