December 13, 2018

FHFA: Proposed Rule Issued on Validation and Approval of Credit Score Models

The Federal Housing Finance Agency (FHFA) is seeking public comment on a proposed rule that would establish standards and criteria for the validation and approval of third-party credit score models used by Fannie Mae and Freddie Mac (the Enterprises).  This proposed rule is required by Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (Public Law 115-174) enacted in May (the Act).

The proposed rule would establish a four-phase process for an Enterprise to validate and approve credit score models:

The Act does not require the Enterprises to use a third-party credit score model.  However, if an Enterprise conditions the purchase of a mortgage loan on a borrower’s credit score, that credit score must be produced by a model that has been validated and approved by the Enterprise based on the standards and criteria in the Act and FHFA regulations.

Before the Act’s passage, FHFA had been actively evaluating the potential impact of a new credit score model or models as part of an ongoing Conservatorship Scorecard Initiative. In July, FHFA announced it would not make a decision on updating the credit score model used by the Enterprises and instead would shift its focus to implementing the steps required under the Act.

FHFA invites interested parties to submit comments on the proposed rule via FHFA.gov within 90 days of publication in the Federal Register or via mail to FHFA, Eighth Floor, 400 Seventh Street SW, Washington D.C. 20219.  FHFA will also hold a webinar on Jan. 9 at 1 p.m. EST to explain the proposed rule and answer questions.  Register for the webinar here.

Link to Proposed Rule

Link to Fact Sheet: Proposed Rule on Validation and Approval of Credit Score Models

This post was originally published here.