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The Federal Housing Finance Agency (FHFA) Thursday issued a proposal outlining how it will conduct its process for evaluating new credit scoring models for use by the government-sponsored enterprises (GSEs). NAFCU will issue a Regulatory Alert seeking member feedback on this proposal and provide comments to the agency.

As mandated by S. 2155 (section 310, the Credit Score Competition Act), the FHFA was required to create this new evaluation process, develop a proposed rule, receive and evaluate public comments and issue a final rule on how the GSEs will use more than one credit score model.

The proposal released Thursday, which has a 90-day comment period, creates a four-step validation and approval process, including:

1. application submissions from credit score model developers;
2. an application review;
3. a credit score assessment by a GSE for "accuracy, reliability and integrity," among other requirements; and
4. an enterprise business assessment, which would assess the credit score model in conjunction with the GSEs' business systems.

The proposal states that the FHFA is seeking feedback on any "operational impacts or considerations that should be addressed in implementing any newly approved credit score models, including timing between approval of any new credit score model and required delivery of the new score(s) to an Enterprise or whether there are issues related to implementation that are not covered by the proposed rule."

For the past three years, the FHFA was working on an initiative to evaluate potential changes to the GSEs' credit score requirements and issued a request for information (RFI) earlier this year, but then abandoned that initiative to work on implementing the requirements of S. 2155. In response to the RFI, NAFCU has recommended to the FHFA that it provide credit unions with more flexibility, rather than continuing to use a one-size-fits-all approach. The evaluation of new credit scoring models, NAFCU believes, will ultimately help consumers by leading to fairer, more accurate models as competition between these models increases.

For a further breakdown of S. 2155's credit union-related relief provisions, check out NAFCU's detailed summary guide of the bill.