Independent Banker deciphers FHFA credit score transition

A new Independent Banker article breaks down the Federal Housing Finance Agency’s new credit scoring requirements for Fannie Mae and Freddie Mac and ICBA’s concerns with the models.

Background: The FHFA is transitioning Fannie and Freddie from classic FICO to the FICO Score 10 T and VantageScore 4.0 credit scoring models. The 10 T uses a new set of predictive characteristics generated from both traditional and trended credit bureau data, and VantageScore 4.0 examines consumer credit behavior over time.

Details: In the article, ICBA’s Ron Haynie and Tim Roy cite community banker concerns over the lack of transparency and data that went into developing these models. They note that the transition from a tri-merge to a bi-merge system for credit reporting could result in fair lending issues.

ICBA View: ICBA has repeatedly reiterated concerns with the FHFA initiative:

• Pushing back against the FHFA plan to publish historical data on the VantageScore 4.0 credit scoring model.

• Calling on the FHFA to release the results of its testing process that validated the new credit score models.

• Expressing concerns that the FHFA plan fails to address the far-reaching effects of the change and lacks sufficient stakeholder engagement and transparency.

More: ICBA also recently expressed support for legislation that would require the FHFA to conduct a cost-benefit analysis before implementing the new credit scoring requirements.

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