News & Media

FHFA Publishes Final Rule on Credit Score Models

The credit-score change, which becomes effective in Oct., will make it easier for some families without traditional credit histories to be approved for a mortgage.

WASHINGTON – The Federal Housing Finance Agency (FHFA) published a final rule in the Federal Register for validating and approving third-party credit score models. Those models can then be used by Fannie Mae and Freddie Mac (the GSEs) in making lending decisions.

“A borrower’s credit score unlocks mortgage financing through the GSEs, a critical gateway for millions of homebuyers,” says National Association of Realtors® President John Smaby. “However, the credit score currently used by Fannie Mae and Freddie Mac is nearly two decades old, ignoring innovations in modeling and overlooking a wealth of non-traditional information about potential homebuyers."

The guidelines become effective 60 days after publication in the Federal Register. Coupled with an announcement yesterday from the Department of Housing and Urban Development about changes in FHA approvals for condo loans – also effective in October – first-time Florida homebuyers should find it easier to buy a condo in the fall.

The regulation requires a four-phase process for validation and approval of credit score model(s):

  1. Solicitation of applications from credit score model developers
  2. Submission and initial review of submitted applications
  3. Credit score assessment
  4. Enterprise business assessment

“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,” says FHFA Director Mark Calabria. “The final rule we are publishing today is an important step toward achieving that goal.”

Within 60 days of the effective date, FHFA will begin a review of the materials the Enterprises plan to use in the public solicitation process. After FHFA approves those materials, the GSEs will make details of the solicitation process publicly available. FHFA will determine the date that the initial solicitation will open for credit score model developers to apply. The Enterprises’ solicitation period will remain open for 120 days.

“Realtors applaud these FHFA efforts to foster competition and innovation in credit modeling, creating a path for new models that will open homeownership opportunities for countless responsible, creditworthy Americans,” says Smaby.

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