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Financial Services Law Insights and Observations

FHFA issues final rule on new credit score models

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

Agency Rule-Making & Guidance

On August 13, the FHFA announced its final rule on the validation and approval of third-party credit score model(s) that can be used by Fannie Mae and Freddie Mac (the GSEs), implementing Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule defines a four-phase process for a GSE to validate and approve credit score models: (i) solicitation of applications from credit score model developers; (ii) submission and review of applications; (iii) credit score assessment; and (iv) business assessment, which, among other things, evaluates the impact of using the credit score model on industry operations and mortgage market liquidity. Additionally, the final rule lays out timing and notices for GSE decisions under the process. After a GSE approves or disapproves of an application, within 45 days the FHFA must approve or disapprove of the GSE’s proposed determination. If any applications are approved, the credit score solicitation will be made publicly available. The rule will take effect 60 days after it is published in the Federal Register.