Fannie Mae and Freddie Mac don’t issue mortgages, but by financing trillions of dollars in loans they exert control over the underwriting standards lenders use to approve borrowers. To get a mortgage they back, home buyers need a minimum score of 620 on a scale of 300 to 850 -- and it must come from Fair Isaac Corp.’s FICO. Fannie and Freddie face a year-end deadline to decide whether they'll allow FICO rivals, such as VantageScore Solutions LLC. And frustrated by the government’s delays, lawmakers in both parties have introduced bills that would require the mortgage companies to consider different credit models. They’re backed by advocates including the Consumer Federation of America and business groups like the National Association of Realtors.
Some say the FICO model is outdated. It doesn’t sufficiently distinguish between types of debt that newer models take into account, such as student loans or medical bills. Allowing competition with FICO, created in 1989, would also speed the use of alternative data like rent and utility payments that could open home ownership to more black and Hispanic borrowers. Others say the scoring model of the competition evaluates borrowers who don’t have enough of a credit history to derive an accurate score.
The Federal Housing Finance Agency says an analysis of new models, done by Fannie and Freddie, shows a change wouldn’t broaden mortgage access very much and could be expensive. The agency plans to solicit public input this fall and said could release some of the findings. The regulator’s list of 2017 goals for Fannie and Freddie includes deciding the issue by the end of the year. South Carolina Republican Tim Scott and Virginia Democrat Mark Warner introduced a bill this month that would force the FHFA to allow Fannie and Freddie to use new models within six months. A bipartisan group of House lawmakers earlier this year introduced a similar bill. It isn’t unclear how quickly Congress might act on the legislation.