Credit Score Competition Act revives in Congress
I’m pleased to report the reintroduction of a bipartisan Congressional bill aimed at ending the lockout on credit-scoring competition on mortgages submitted for purchase by Fannie Mae and Freddie Mac.
On February 8th, U.S. Representatives Ed Royce (R-CA), Kyrsten Sinema (D-AZ), and Terri Sewell (D-AL) introduced H.R. 898, the Credit Score Competition Act.
The bill shares its name and language with a bill that was introduced in late 2015 by Representative Royce, a senior member of the House Financial Services Committee, Representative Sewell (who now sits on the House Ways & Means Committee) and Representative Sinema (another Financial Services member). Six other House members joined as co-sponsors. It was then introduced as H.R. 4211.
Representative Royce explained that “alternative credit score consideration by the GSEs is a win-win: It opens up the market in a responsible manner for those qualified to buy a home and eliminates the government-backed monopoly in credit scoring. That’s why the Credit Score Competition Act has garnered such strong bipartisan support.”
In the last Congress, H.R. 4211 was the subject of hearings last September (9/27) before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. During that hearing, Representative Scott Tipton (R-CO), a subcommittee member and co-sponsor of the bill, noted that the Credit Score Competition Act would “increase innovation, alleviate portfolio risk and lower systemic risk in housing markets.” Representative Tipton went on to say: “I’d like to encourage all of my colleagues to support this important piece of legislation.”
Since its reintroduction, the bill has received considerable media attention. Dow Jones noted the following in its daily Institutional News email bulletin:
“For years, lenders who wanted to sell mortgages to FNMA [Fannie] and FMCC [Freddie] have had to use FICO credit scores to underwrite borrowers. That has become a contentious issue in recent years among some mortgage lenders, consumer advocates and realtor groups that say other scores should be permitted and that this would result in more consumers getting approved for mortgages and more loan volume. The score most widely cited for inclusion is called the VantageScore. The FHFA [Federal Housing Finance Agency, the regulator that oversees Fannie and Freddie] has been reviewing whether to allow for other credit scores to be accepted by the GSEs for more than a year.” (emphasis added)
And an article in HousingWire.com, headlined House reintroduces bill to end “FICO monopoly” at Fannie Mae and Freddie Mac, included a quote from me:
“Markets work most efficiently when there’s competition and the status quo is effectively a government-sanctioned monopoly. That is because the GSE Seller / Servicer Guides require lenders to use the three 04 models of FICO for loans that are to be presented for consideration by the GSEs’ automated underwriting systems.
“We are supportive of all of the efforts to bring much-needed competition among credit score model developers into the mortgage origination space,” Burns added. “From the beginning, our ask has always been to allow lenders to choose among today’s more predictive models that score more creditworthy consumers without relaxing credit standards.”
The three national credit reporting companies support this legislation and we encourage others to join us in supporting H.R. 898. The regulatory framework for the mortgage market should support fair competition across the spectrum. The bill is a measured and reasonable call for leveling the playing field for credit-score developers in the U.S. mortgage market so that investors, lenders, the GSEs and American families can leverage the benefits of competition.
All the best,