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GSE Adoption

VantageScore has campaigned for years for the opportunity to compete in the mortgage market so that more consumers can benefit from having more accurate and inclusive models determine their eligibility (and the price they pay) for mortgages. Outside the mortgage market, competition between model developers has led to more predictive, more consumer-friendly, and more inclusive credit scoring models. Lenders in the other asset classes have clearly voted for competition.

In fact, according to a recent study by Oliver Wyman, more than 10.5 billion VantageScore credit scores were used last year by more than 2,800 unique users. Additionally, more than 2 billion VantageScore credit scores were provided directly to consumers. Almost none of that usage took place in the mortgage market where GSE policy creates a monopoly for FICO; denying lender choice, unlike any other consumer lending asset class.

Inside the mortgage industry, both Fannie Mae and Freddie Mac use credit scores as the gating factor to determine product eligibility and pricing.

After years of analysis, FHFA is poised to implement a new law that would finally provide mortgage lenders a choice among validated credit scoring models.

Signed into law on May 24, 2018, S. 2155, The Economic Growth, Regulatory Relief, And Consumer Protection Act / Section 310 Credit Score Competition, amends the Federal National Mortgage Association Charter Act and the Federal Home Loan Mortgage Corporation Act; allowing the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) to determine whether to purchase a residential mortgage and to consider a borrower’s credit score only if certain procedural requirements are met with respect to the validation and approval of credit-scoring models.

The Federal Housing Finance Agency shall, by regulation, establish standards and criteria for processes used by Fannie Mae and Freddie Mac to validate and approve credit-scoring models in accordance with the bill. 

 

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