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Federal Housing Finance Agency Releases Credit Score Model Rule

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Federal Housing Finance Agency Releases Credit Score Model Rule

On August 13, 2019 the Federal Housing Finance Agency (FHFA) released a final credit score rule for Fannie Mae and Freddie Mac (the GSEs). This rule implements requirement that were enacted as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. The rule establishes the processes and standards that the GSEs will use in evaluating third-party credit scoring models. The evaluation of credit-score models will include the following four phases:

  1. The FHFA directs the GSE to solicit a credit-score model from third-party model developers;
  2. The GSE performs an initial assessment of applications;
  3. The GSE assesses the credit score; and,
  4. The GSE Business Assessment.

The rule provides for FHFA review and approval of GSE credit score solicitations and FHFA prior review and approval over the entire model acquisition process. The adoption of new credit scoring models by the GSEs will likely have a first effect in the mortgage industry, but may also drive innovations in credit scoring for other types of consumer finance.

August 16th, 2019 by