The following are concerns that have been raised and found to be baseless:
VantageScore provides credible competition to the existing FICO monopoly and the accompanying threat of a monopolist’s unchecked pricing power. Simply put, the greater threat to competition would be the continuation of the longstanding government-sanctioned monopoly that denies lenders the opportunity to choose among validated, statistically sound and approved competing credit score models.
While the 3 national credit reporting companies (CRCs) own VantageScore, concerns about an adverse impact on competition are unfounded.
- The CRCs do not have pricing power. Rather, the status quo gives FICO® unparalleled and highly controversial negotiating leverage with almost every participant in the mortgage industry.
- The co-ownership of VantageScore enables our data scientists to deploy the same model across all three CRCs which facilitates a more consistent score outcome. This solves consumer confusion when scores aren’t aligned. It also affords lenders with a clearer picture of risk.
- Just months after the FHFA committed to using FICO at least until the common securitization platform is fully launched (2019), FICO increased the price of its scores in the mortgage market. And who pays for the credit score? Consumers do.
- Strong and sustainable ownership that understands market forces allows VantageScore to buck the status quo and enables the company to withstand a lengthy sales cycle.
- The Sherman, Clayton and FTC Acts clearly proscribe any kind of pricing fixing or other improper collusion.
- Under the law, it is acceptable, if not encouraged, for companies to come together to foster competition and compete for market share so long as they refrain from collusion to grab market share.
Competition Would Lead to a “Race to the Bottom”
Model governance practices are in place to guard against any hypothetical declines in the predictiveness of credit scoring models. In addition, since any model approved for use by Fannie Mae or Freddie Mac would be subject to the “standards and criteria” established by FHFA, competition could only result in a race to the top, rather than the bottom – since FHFA’s standards and criteria would set a “floor.”
Model developers would not roll out new models that were less predictive than previous models because lender testing would reject them before implementation. And these new models are ALWAYS subject to regulatory scrutiny when used in a lender’s systems. VantageScore is currently used by over 2,200 financial institutions – all of which presumably tested and continue to test to ensure accuracy.
Mortgages are not underwritten on credit scores alone. Each consumer’s full credit file, income, employment, debt-to-income ratio (DTI), down payment amount (LTV) , and assets all go into the underwriting process.
- Scores are used for initial product eligibility and pricing.
- The “Ability to Repay” rule prevents underwriting deterioration.
- Under Sec. 310 of S. 2155 any scoring model used in the origination of loans sold to Fannie and/or Freddie must first meet a “validation and approval” process.