Freddie Mac said to test artificial intelligence underwriting software

Freddie Mac's efforts to improve underwriting could include the use of a technology firm's artificial intelligence-driven consumer-risk modeling software that can expand access to credit, according to the Wall Street Journal.

Freddie is reportedly testing the automation and its regulator and conservator, the Federal Housing Finance Agency, is said to have met with the company, ZestFinance.

The financial technology firm's software combines several credit and risk models into one, and aims to help expand credit by screening applicants that might otherwise be dismissed by some underwriting models for lacking sufficient traditional credit histories.

Companies that have used or tested ZestFinance's technology include Ford Motor Credit Co. and Discover Financial Services. ZestFinance's founder, Douglas Merrill, is the former CIO of Google.

Consumer credit lenders are moving cautiously in their adoption of artificial intelligence in underwriting. Among other things, there is debate about whether it would advance fair lending requirements or inadvertently produce results at odds with them.

But as much as there is concern that new risk modeling might unintentionally produce noncompliant underwriting results, there also is concern that existing credit scoring and risk models are contributing to inequitable lending.

The government-sponsored enterprises have been faced with some criticism for their more traditional underwriting models and have been looking into updating them with the intent of reaching more borrowers.

In addition to reportedly working with ZestFinance, the FHFA and the government-sponsored enterprises have, for example, shown an increased willingness to consider an alternative to the FICO credit score model Fannie Mae and Freddie Mac currently use.