A proposed change in how a borrower’s representative credit score is calculated once Fannie Mae and Freddie Mac migrate from using three to only two credit reports is premature and has significant credit policy implications, the American Bankers Association and three other associations said Friday in a letter to the Federal Housing Finance Agency.
FHFA in March issued a proposed rule replacing the classic FICO credit score model with the FICO 10T and the VantageScore 4.0 credit score models, and transitioning from requiring three credit reports to requiring two credit reports—or “bi-merge”—for single-family loan acquisitions. In their letter, the associations expressed their concern about the bi-merge requirement, adding that FHFA’s proposed rulemaking would benefit from a public engagement process, as the groups had previously requested.
The associations had two key recommendations. First, loan-level government-sponsored enterprise data spanning back to 1999 to support the bi-merge migration should be published sooner than the fourth quarter of 2023 to allow the necessary analysis and impact assessment, in accordance with standards of professional practice for model estimation, ahead of the proposed implementation in Q1 of 2024. Second, FHFA should work closely with the industry to fully assess operational and regulatory compliance considerations for mortgage market participants, including for the notices and disclosures required under the Fair Credit Reporting Act.
“A bi-merge credit report process where the representative credit score is determined by averaging the two scores will impact how financial institutions meet FCRA notification obligations,” the associations said. “Careful consideration, dialogue and openness to input regarding this element of the migration would be tremendously beneficial to creating a smooth and seamless transition for industry and consumers alike.”