ICBA: FHFA credit score modernization effort missing key elements

The Federal Housing Finance Agency's Credit Score Models and Reports Initiative is overly complex, costly to consumers, and missing key requirements for a successful transition, ICBA and other groups said in a letter outlining recommendations.

Background: The FHFA’s initiative, which started in October 2022, includes the validation of two new credit score models—FICO 10T and VantageScore 4.0—for use by Fannie Mae and Freddie Mac. It also introduced a bi-merge option allowing lenders to use credit scores from two of the credit reporting agencies instead of the traditional tri-merge.

Recommendations: ICBA and the other groups outlined actions FHFA must complete before moving forward:

• Data transparency and sharing.

• A cost-benefit analysis and operational impact assessment.

• Re-evaluation and postponement of the bi-merge option.

• Coordination with prudential regulators.

• Alignment with government lending programs.

ICBA Advocacy: In a letter to FHFA Director Bill Pulte earlier this week, ICBA called on the FHFA to reconsider the implementation of policies, projects, and initiatives that could be harmful for the housing finance industry, such as the Credit Score Models and Reports Initiative. ICBA letters to the FHFA in December and June of 2023 expressed similar concerns and recommendations.

More: A 2024 Independent Banker article breaks down the FHFA’s new credit scoring requirements and ICBA’s concerns with the models. The article cites community banker concerns over the lack of transparency and data that went into developing the models and notes that the transition from a tri-merge to a bi-merge system for credit reporting could result in fair lending issues.