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Financial Services Law Insights and Observations

FHFA pauses credit score initiative, will use formal rulemaking to create new credit score model

Agency Rule-Making & Guidance FHFA Credit Scores Fannie Mae Freddie Mac EGRRCPA

Agency Rule-Making & Guidance

On July 23, the Federal Housing Finance Agency (FHFA) announced that it will not decide this year whether to update the credit score model used by Fannie Mae and Freddie Mac (the Enterprises), as previously announced. Instead, FHFA will focus on implementing Section 310: Credit Score Competition, of the Economic Growth, Regulatory Relief, and Consumer Protection Act (Public Law 115-174) (the Act). Section 310 requires FHFA to establish, through the rulemaking process, standards and criteria to govern the verification and validation of credit score models used by the Enterprises. According to the press release, prior to Section 310 becoming law, FHFA and the Enterprises had been engaged in an ongoing initiative to evaluate a new credit score model’s potential impact on “access to credit, safety and soundness, operations in the mortgage finance industry, and competition in the credit score market.” However, after Section 310 was enacted in May, FHFA “determined that proceeding with efforts to reach a decision based on our [initiative] and timetable would be duplicative of, and in some respects inconsistent with, the work we are mandated to do under Section 310 of the Act. In light of that, we are communicating to Congress that we are transferring our full efforts to working with the Enterprises to implement the steps required under Section 310.” FHFA will release a proposed rule open for public comment in the future to govern the verification of credit score models.

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