FHFA to seek public input on alternative GSE credit score model

WASHINGTON — Federal Housing Finance Agency Director Mel Watt said the agency is poised to examine alternatives to how a Fannie Mae and Freddie Mac assess creditworthiness of home buyers, including seeking public comment on the issue later this fall.

Speaking to a conference sponsored by the Mortgage Bankers Association in Denver on Monday, Watt said the agency is looking at whether his agency should compel Fannie and Freddie to change their credit score model — including “possibilities that would involve using more than one credit score.”

The issue raises several questions, Watt said, including whether a competing score would provide helpful and new information in establishing a borrower’s creditworthiness, whether competing scores might lead to a “race to the bottom” among competitors, and whether the costs of implementing an alternative credit score or multiple-credit score system would outweigh the benefits.

“Through the RFI [request for information], we hope to get honest and reliable information and stakeholder feedback on these and other matters relevant to this critically important decision,” Watt said.

Watt has said before that any changes to the GSE credit score model would not be imminent. Even in the most optimistic scenarios, those changes would not be implemented before 2019. A request for information — which typically precedes a formal proposal by months or even years — would push back that implementation date still further.

Watt also noted that the FHFA had recently added a question to the Uniform Residential Loan Application that indicates preferred language of the borrower. While the change “would not be universally applauded by members of the MBA," he said, it would mitigate some legal concerns for lenders and help right-size expectations for borrowers, and does not require the parties to conduct real estate transactions in languages other than English.

Watt reiterated his calls for Congress to reform the government-sponsored enterprises, noting that the nine years of conservatorship is “unprecedented in the history of our country” and that the combined $5 trillion in mortgages underwritten by the GSEs is a significant proportion of gross national product.

“FHFA has taken a number of steps to reform the enterprises and reduce the risk of their business models while they have been in conservatorship,” Watt said. “While I think of these reforms as GSE reform, I have also made it clear that I firmly believe that … it is the role of Congress, not FHFA, to do housing finance reform.”