March 30, 2018

NAFCU recommends flexibility in GSEs' credit score models

NAFCU Regulatory Affairs Counsel Ann Kossachev, responding to the Federal Housing Finance Agency's (FHFA) request for input on credit score models, recommended the agency pursue the "lender choice" option to provide credit unions with more flexibility, rather than continuing to use a one-size-fits-all approach.

The FHFA is considering alternative credit scoring models to be used by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. It requested feedback focused on access to credit, costs and operational considerations on four options: single score, requiring both FICO 9 and VantageScore 3.0, lender choice, or waterfall.

In her letter, Kossachev said the lender choice option would "allow the institution to decide which model will best serve its members" and provide many benefits for both credit unions and their members.

"[E]ven though the FHFA will have to manage multiple credit scores across all players in the mortgage industry, this competition among models will likely lead to fairer, more accurate models in the long run in terms of predictive power, consistency, inclusion, and consumer-friendliness," Kossachev wrote.

Kossachev also expressed NAFCU members' support for the elimination of the current tri-merger credit report requirement as it "introduces confusion and unnecessary cost, which is mostly passed on to the borrower in the form of pass through closing costs."

NAFCU encourages the FHFA to move swiftly through the rulemaking process while also ensuring minimal cost and disruptions to credit unions during the adoption of new models. The association also recommends that the GSEs provide consumer education to both lenders and borrowers so they better understand the different scoring metrics and how it determines the price of loans.

The full letter is available here.