The Federal Housing Finance Agency (FHFA) announced this week it will suspend an initiative dedicated to updating a credit score model used by Fannie Mae and Freddie Mac. The updated model would, the agency hoped, have helped “provide millions of creditworthy Americans who have been unable to be scored with a credit score and a path to homeownership.”
FHFA director Mel Watt cited a need to shift focus and resources to “the implementation of section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act” that went into effect in May of this year. The act will modify many aspects of Dodd Frank Wall Street Reform and Consumer Protection Act, but did also cover the need for the FHFA to use “alternative credit score models.”
Watt said pursuing both the credit model update and the changes from section 310 would be “duplicative of, and in some respects inconsistent with, the work we are mandated to do under Section 310 of the Act.”
This Affects Millions of Consumers
The decision to suspend the initiative could mean that about 7.6 million consumers who do not presently have a credit score will continue without one in the future. The models the FHFA was considering would have given some of these individuals a score as high as about 620 thanks to the inclusion of utilities and rent payments, as well as other credit-relevant information.
FICO scoring is already in the process of attempting to integrate “less traditional sources of data,” but the progress has been slow because that information is not widely reported to credit bureaus. The delay of the new scoring system could mean that about 3 million of the 7.6 million non-scored individuals who might have had the means to qualify to purchase a median-priced home in their area still will find themselves in need of creative or flexible financing options since traditional financing will likely remain out of reach.