Fannie, Freddie to Consider Alternatives to FICO Scores--2nd Update

Date : 08/13/2019 @ 8:50PM
Source : Dow Jones News
Stock : Experian (QX) (EXPGY)
Quote : 30.67  0.31 (1.02%) @ 9:06PM
Experian (QX) share price Chart

Fannie, Freddie to Consider Alternatives to FICO Scores--2nd Update

Experian (QX) (USOTC:EXPGY)
Historical Stock Chart

1 Month : From Jul 2019 to Aug 2019

Click Here for more Experian (QX) Charts.
By Andrew Ackerman 

WASHINGTON -- One firm's dominance over the credit scores used to vet many U.S. mortgages is getting a shake-up.

Fannie Mae and Freddie Mac, two mortgage-finance firms that back nearly half of U.S. mortgages, will have to consider credit-score alternatives to Fair Isaac Corp.'s FICO score when determining a mortgage applicant's creditworthiness, under a new rule issued on Tuesday by the mortgage-finance giants' federal overseer.

The move by the Federal Housing Finance Agency is seen as a win for VantageScore, a credit-score system by VantageScore Solutions LLC, which is owned by the three large credit-reporting firms: Equifax Inc., TransUnion and Experian PLC.

"One of my priorities is to ensure that the American people have a safe and sound path to sustainable homeownership, which requires tools to accurately measure risk," FHFA Director Mark Calabria said in a written statement. The new rule "is an important step toward achieving that goal, " he added.

Regulatory rollback legislation signed into law last year required the FHFA to set new standards for Fannie Mae and Freddie Mac to approve credit-score models.

Many nonbank lenders -- who approve mortgages to individuals and initiate the bulk of mortgage dollars issued in the U.S. -- have asked for the ability to use a credit score provided by VantageScore. These lenders say the alternative score would open the mortgage market to a greater number of people and lead to more mortgage approvals, helping to boost home sales and the economy.

Some lenders view FICO scores as an impediment since they tend to be more cautious than alternatives.

Credit scores help determine who gets a mortgage and on what terms. They played a role in the last housing boom and bust as lenders lowered credit-score requirements, extending hundreds of billions of dollars of mortgages to subprime borrowers -- creating a crushing number of defaults.

After the financial crisis, lenders tightened requirements for potential home buyers. As part of this, they required higher credit scores that reduced the number of people who qualified for a mortgage.

That led some lenders to seek new kinds of scores that could be used to expand the lending pool.

Since Fannie and Freddie back roughly half of U.S. mortgages, by buying mortgages originated by others, their requirements have huge sway over the mortgage market.

VantageScore has long said its score could help approve more mortgage applicants, in part because it can assign a score to consumers who haven't used credit in more than six months. FICO said that VantageScore's approach, which seeks to give credit scores to people with stale or thin credit files, would lead to less predictive scores and riskier loans.

"Competition is critical for markets to operate efficiently and we are confident this decision will benefit consumers, lenders and the economy at-large," said Barrett Burns, president and chief executive of VantageScore Solutions, in a written statement.

Tuesday's final rule is a boon to VantageScore because it eliminates language from a December proposal that would have prohibited any credit score models developed by a company related to a credit-reporting firm. The FHFA eliminated that restriction amid pushback from the credit-reporting industry and congressional lawmakers.

The measure goes into effect 60 days after its publication in the Federal Register.

AnnaMaria Andriotis contributed to this article.

Write to Andrew Ackerman at andrew.ackerman@wsj.com

 

(END) Dow Jones Newswires

August 13, 2019 15:35 ET (19:35 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

Latest EXPGY Messages

{{bbMessage.M_Alias}} {{bbMessage.MSG_Date}} {{bbMessage.HowLongAgo}} {{bbMessage.MSG_ID}} {{bbMessage.MSG_Subject}}

Loading Messages....


No posts yet, be the first! No {{symbol}} Message Board. Create One! See More Posts on {{symbol}} Message Board See More Message Board Posts
Your Recent History
LSE
GKP
Gulf Keyst..
LSE
QPP
Quindell
FTSE
UKX
FTSE 100
LSE
IOF
Iofina
FX
GBPUSD
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.

NYSE, AMEX, and ASX quotes are delayed by at least 20 minutes.
All other quotes are delayed by at least 15 minutes unless otherwise stated.

By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions

P: V:us D:20190819 01:20:17