FHFA Considers Changing Credit Scoring Model | Will It Make A Difference?
In what on the surface seems to be a good faith effort to expand homeownership opportunities, the Federal Housing Finance Agency recently evaluated the possibility of switching credit score requirements from classic FICO to either FICO 9 or VantageScore 3.0. Critics of the proposed adjustment argue that changing requirements will do little to expand the mortgage markets as widening the pool of those eligible does not guarantee that more borrowers will be realistically capable to undertake a mortgage.
Those in support of restructuring the credit reporting standard argue that consumers stand to benefit from more accurate credit services encouraged through competition. Barrett Burns, VantageScore Solutions president and CEO commented, “Monopolies never benefit markets or consumers and they create the opportunity for pricing power unchecked by competition.” VantageScore is one of the two credit scoring models in the running to dethrone FICO.
Those who doubt whether alternative credit scores will really help close more mortgages include Tom Parrent of Quantalitic, who commented that “of the two million [potential borrowers] that you would expand, you’d only get an additional 50 thousand or so who would be likely to want a mortgage and be able to obtain one with the other underwriting standards.” Watch a recent panel discussion by the Progressive Policy Institute on Updated Credit Scoring and the Mortgage Market here.
The FHFA have encouraged all stakeholders to give feedback on the proposed credit scoring change. To submit comments, use the Provide Input form and choose Credit Score from the topic drop down menu. Janus AMC is following the potential score change and will relay updates as relate to our lenders here on our blog. Check back soon for the latest home lending news.