Scott, Colleagues Press FHFA to Implement New Credit Scoring Models, Abandon Change in Report Requirements

Letter

Dear Director Thompson:

We write to express our concerns regarding the Federal Housing Finance Agency's (FHFA)
ongoing transition to and implementation of updated credit score models and credit report
requirements for loans acquired by Fannie Mae and Freddie Mac (the Enterprises).

The bipartisan Credit Score Competition Act was signed into law over five years ago as part of
the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (Pub. L. 115--
174, Section 310). Section 310 established requirements for use of third-party credit scoring
models by the Enterprises, updating their decades-old model and allowing for the inclusion of
alternative data sources like rent, utility, and telecom bill payments. Including this alternative
data into scoring models will expand homeownership opportunities for creditworthy borrowers
and make scores more predictive. Implementing Section 310 provides an opportunity to make the
credit scoring models our housing market relies on more fair and accurate, without lowering
standards needed to qualify for a mortgage. Thus, it is critical that FHFA adhere to the current
timeline for implementation of this law and take efforts to prepare stakeholders for this transition
without delay.

While FHFA's announcement of implementation represented a positive step toward bringing
more predictive data into the system, the Agency simultaneously announced that the Enterprises
would be transitioning from the current requirement that lenders provide credit reports from all
three (tri-merge) national consumer reporting agencies (CRAs) to only two (bi-merge). FHFA's
decision to implement the bi-merge would inherently result in incomplete data being reported to
the Enterprises. This decision is seemingly at odds with the implicit goal of Section 310, which is
to allow for consideration of more data to increase predictiveness of credit models. Reducing the
information that lenders are required to provide through the bi-merge credit report requirement
may harm prospective borrowers and increase risk within our housing market.

The Hon. Sandra Thompson
Oct. 15, 2023
2

Though FHFA asserts that the bi-merge "is expected to reduce costs and encourage innovation,
without introducing additional risk to the Enterprises,"1 FHFA has failed to produce any
evidence to back up these claims. FHFA previously sought input on the use of credit reports in a
2017 Credit Score Request for Input,2 but FHFA has neither solicited feedback since that initial
effort nor initiated a formal rulemaking process under the Administrative Procedure Act.3
Indeed, when FHFA last considered this change, it admitted that "FHFA and the Enterprises
would need to fully understand the costs and benefits before making any change to the tri-merge
requirement."4 But no cost-benefit analysis or any other information has been shared with
Congress or the public regarding this decision.

Recently, numerous housing organizations and lawmakers on both sides of the aisle criticized the
rollout and implementation of these changes,5 so we were encouraged to see FHFA's
announcement that it would conduct additional public engagement and is expected to delay
transition to a bi-merge credit report.6 However, listening sessions alone are no substitute for
formal rulemaking, and pairing the delay of the bi-merge implementation with that of Section
310 risks slowing implementation of the latter, an unacceptable outcome since it became law
over five years ago.

We encourage you to abandon plans to transition from a tri-merge to the bi-merge credit report
which run counter to the spirit of Section 310 and afoul of the traditional process for notice-andcomment rulemaking. We cannot afford a reduction in the accuracy and predictive power of data
provided to the taxpayer-backed Enterprises with no meaningful benefits for consumers. Rather
than increasing risk, FHFA should maintain the current timeline7 for implementation of the new credit scoring models five years since Section 310 was enacted. To assist in swift implementation, we urge immediate action to ensure better coordination and data sharing with
private sector participants in this transition to new credit scoring models.

1 Fed. Hous. Fin. Agency, Fact Sheet: FHFA Announcement On Credit Score Models (Oct. 24, 2022), available at https://www.fhfa.gov/Media/PublicAffairs/Documents/CS-Fact-Sheet-2022.pdf.
2 Fed. Hous. Fin. Agency, Credit Score Request For Input (Dec. 20, 2017) https://www.fhfa.gov/Media/PublicAffairs/PublicAffairsDocuments/CreditScore_RFI-2017.pdf.
3 5 U.S.C. § 551 et seq.
4 Validation and Approval of Credit Score Models, 84 Fed. Reg. 41,886, 41,898 (Aug. 16, 2019).
5 See Letter from Housing Policy Council et. al to the Hon. Sandra Thompson, Dir., Fed. Hous. Fin. Agency (June 23, 2023), https://www.housingpolicycouncil.org/_files/ugd/d315af_c48044047d804e8fb0b4b8859defcf29.pdf;
FHFA Oversight: Protecting Homeowners and Taxpayers: Hearing Before the H. Comm. On Fin. Serv., 118th Cong. (2023), available at https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=408797.
6 Press Release, Fed. Hous. Fin. Agency, FHFA Announces Next Phase of Public Engagement Process for Updated Credit Score Requirements (Sept. 11, 2023), https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-AnnouncesNext-Phase-of-Public-Engagement-Process-for-Updated-Credit-Score-Requirements.aspx.
7 Press Release, Fed. Hous. Fin. Agency, FHFA Announces Public Engagement Process for Implementation of Updated Credit Score Requirements (Mar. 23, 2023), https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFAAnnounces-Public-Engagement-Process-for-Implementation-of-Updated-Credit-Score-Requirements.aspx.

The Hon. Sandra Thompson
Oct. 15, 2023
3

Thank you for your attention to this matter.

Sincerely,

Source