Today, U.S. Representative Ed Royce (R-CA) and U.S. Representative Terri Sewell (D-AL) introduced H.R. 4211, the Credit Score Competition Act of 2015. The bill enables Fannie Mae and Freddie Mac to consider credit scoring models they currently don't evaluate when making mortgage purchasing decisions:
“The GSEs' use of a single credit score is an unfair practice that stifles competition and innovation in credit scoring. Breaking up the credit score monopoly at Fannie and Freddie will also assist them in managing their credit risk and decreases the potential for another taxpayer bailout," said Rep. Royce.
“Fannie Mae and Freddie Mac are the largest mortgage purchasers in the nation, but they rely on credit score models that don’t necessarily take into account something as simple as whether borrowers have paid their rent on time. Home ownership is an integral part of the American Dream that shouldn’t be out of the reach for low-income, rural, and minority borrowers who lack access to traditional forms of credit. This legislation takes an important step towards addressing this issue and helps make homeownership a reality for more Americans across the country,” said Rep. Sewell.
Allowing Fannie and Freddie to make mortgage purchasing decisions with access to multiple empirically derived, statistically sound credit scoring models (like FICO) mitigates the risk in their portfolios and lowers the chance of systemic risk in our housing market.
Additionally, Fannie and Freddie’s 90% share of the secondary mortgage market and reliance on one credit scoring model has created a near monopoly in this field. Opening the GSEs up to other credit scoring models will foster competition and innovation in the credit scoring industry.
Potential homebuyers without a FICO score or with one below 620 are ineligible for a mortgage that can be sold to Fannie or Freddie and are often frozen out of the housing market. Lower-to-middle income Americans that are qualified to buy a home but are unable to gain entry to the market due to their FICO score or lack thereof will specifically benefit from the GSEs using other credit scoring models.
Reps. Royce and Sewell, both members of the House Financial Services Committee, urge swift action from their colleagues to advance this legislation.