Officials from the FHFA joined American Bankers Association Chair Julieann Thurlow today during the final day of the ABA Washington Summit to provide more detail on new credit score methodologies and plans for equitable housing.
According to Ted Wartell, associate director of FHFA’s Office of Housing and Community Investment, the agency’s equitable housing work begins with the premise that one size does not fit all. “How do you meet the needs of borrowers who are lower income or very low income—income at or below 50% of the area median? How are how are borrowers different?” Wartell asked, adding that a long-term view is required to begin such problem solving. “There’s an opportunity now to really analyze data in ways that can be much more productive and constructive.”
In terms of underwriting, Wartell said, one approach that already is “bearing fruit” for people who do not have credit scores is using a history of rental payments. He said Fannie Mae and Freddie Mac are finding ways of examining other sorts of cash flow to see how prospective homebuyers might qualify for a mortgage—helping people transition from successful renters to successful homeowners. “There certainly is a lot of additional data analysis around how borrowers behave around mortgage credit,” he said.
Officials also discussed the transition to the FICO 10T and the VantageScore 4.0 credit score models, as well as the move from requiring three credit reports to two for single-family loans. Dan Fichtler, FHFA’s senior advisor for capital markets, said the approach is built on “better data” that is “more accurate, more predictive.” ABA has asked FHFA for more transparency into this process. “We’re in the process of having the enterprises publish 10 years’ worth of information on all their single-family origination or loan deliveries,” Fichtler explained. “From 2013 to 2023, every single-family loan they purchased are run through the two new models, and you can effectively see how those loans would have been scored had the new models been in place at the time.” He said FHFA will have data on the Vantage score 4.0 model out by the middle of this year and the FICO 10T model “shortly thereafter.”
