Royce Introduces Bill to Break FICO 'Monopoly' for GSEs

20.01.2016
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WASHINGTON — Fannie Mae and Freddie Mac would be able to evaluate and use new credit scoring models under a bill introduced in the House that seeks to create more competition in the credit scoring industry.

The two government-sponsored enterprises have been using the FICO 4 credit score model since Fair Isaac Corp. introduced it in 2004. That has created a government-sanctioned monopoly, according to the sponsors of the bill.

“The GSEs’ use of a single credit score is an unfair practice that stifles competition and innovation in credit scoring,” said Rep. Ed Royce, R-Calif.

Royce is a senior member of the House Financial Services Committee and chairs the House Foreign Affairs Committee.

Rep. Terri Sewell, D-Ala., noted the FICO 4 is outdated and said it doesn’t “necessarily take into account something as simple as whether borrowers have paid their rent on time.”

VantageScore Solutions has been urging the GSEs and their regulator, the Federal Housing Finance Agency, to evaluate and adopt its VantageScore 3.0 credit scoring model.

“Outdated credit scoring models required by Fannie Mae and Freddie Mac limit opportunities for millions of credit worthy borrowers who, through no fault of their own, are unfairly locked out of the automated underwriting program used by most lenders,” said Barrett Burns, president and chief executive of VantageScore Solutions, in a press release.

FHFA set up a task force earlier this year to evaluate alternative credit scoring models and what the implications would be from a systems and operational standpoint.

“We believe their timeline is to finish that study by the end of the year and present it to Mel Watt in the first quarter of 2016,” Burns said in an interview Friday.

FHFA declined comment on the task force’s progress.

VantageScore gave FHFA and the GSEs a road map so they can compare VantageScore 3.0 with other credit scoring models.

“We want lenders to have a choice between FICO and our 3.0 model,” Burns said.

 

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