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, VantageScore was used last year more than 8.5 billion times, including over 6 billion of those scores being used by more than 2,200 lenders in their lending processes. 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. The credit score RFI addresses this use of a credit score used in the process at the front end, prior to the application being submitted to the automated underwriting criteria for the ultimate credit decision. In other words, the process under consideration does not affect the underwriting criteria. Eligibility is defined using a baseline score minimum, typically 620. Pricing is determined based on the borrower’s FICO Score and the LTV of the loan.
After years of analysis, FHFA Director Mel Watt has promised to announce a decision as to the use of newer, more predictive credit scores later this year. This decision will almost certainly include a change of some kind, but the critical question is: will it allow for competition? This is where you come in. FHFA is collecting public input on this key question until March 30th, and support of lender choice will weigh heavily in the decision. (see the four Options offered on page 15 of the RFI).
The document provides instructions for filing comments:
Re: Credit Score Request for Input
The issue being addressed is: Should the three FICO models currently being mandated (developed on data samples from 1995 – 2000 and referred to in the RFI as “Classic FICO”) be replaced? And, if so, should they be replaced by a new monopoly or by a process that fosters lasting competition between model developers?
It is now time for the decision.
We strongly support option three: “Lender Choice on which Score to Deliver, with Constraints.” Available below are five documents that will provide valuable information to help stakeholders formulate their own responses.