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Dual credit score rule could raise mortgage costs for small businesses

HousingWire cites FOIA disclosures showing Fannie Mae and Freddie Mac urged FHFA to use one modernized credit score, but FHFA mandated two and warned the change would be complex for the industry.

Reported · Written up by our desk · Mortgages

Washington says it wants to lower costs and expand access to credit, but HousingWire reports that a Federal Housing Finance Agency decision to require mortgages sold to Fannie Mae and Freddie Mac to use two credit scores could make borrowing more expensive and less predictable for entrepreneurs. The analysis is based on disclosures obtained through a Freedom of Information Act request by the Housing Policy Council. It says FHFA directed Fannie Mae and Freddie Mac to evaluate credit score models and recommend which should be approved as part of a review, with both Enterprises recommending a single modernized score that incorporates trended credit data and advising against an additional score during the transition. HousingWire reports that FHFA overruled that recommendation and required a dual score framework instead. FHFA acknowledged that requiring two different scores for each borrower is a significant change and said implementation would be a multiyear effort due to the complexity and broad impact to the industry, according to the disclosures. HousingWire adds that FHFA argued multiple scores would improve accuracy, prevent adverse selection, and promote competition, and said lenders would need to deliver both scores so they cannot choose which score to use for eligibility or pricing. The outlet notes that credit scores are used throughout the mortgage process and that coordinating how two scores operate across systems would involve extensive work for lenders, investors, mortgage insurers, and other stakeholders, while it also says the agency is not releasing the underlying testing results.

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