Home ownership is an integral part of the American Dream, but buying a home is a stressful process. Perhaps one of the most stressful components — securing a good, home loan.
For millions of Americans the task of being approved for a home loan is daunting, as they know the fate of their future home hinges on one main factor: their FICO credit scores.
Which is why, last December, Alabama 7th District U.S. Rep. Terri Sewell and her colleague Ed Royce from California’s 39th District introduced a bill urging the government-sponsored enterprise (GSEs) Fannie Mae and Freddie Mac — which control 90% of the mortgage market and set the underwriting standards for the entire mortgage industry — to consider alternative credit-scoring models beyond the FICO credit score.
The bill, H.R. 4211: the Credit Score Competition Act of 2015 aims to abandon FICO for a softer standard in evaluating credit risk making home ownership a greater possibility for more Americans.
Last week, the Federal Housing Finance Agency (FHFA) released their 2017 Scorecard and seemed to take heed of Sewell’s and Royce’s bill including stating that the FHFA expects the GSEs to: “Conclude assessment of updated credit score models for underwriting, pricing, and investor disclosures, and, as appropriate, plan for implementation.”
Sewell and Royce say the change of policy is a win-win.
“Alternative credit score consideration by the GSEs is a win-win: it opens up the market to those looking to buy a home in a responsible manner and fosters healthy competition in the credit scoring field,” said both Reps in a joint press release. “That’s why there is strong bipartisan support in Congress for such a move. We encourage the FHFA to move forward without further delay.”
In Royce and Sewell’s view, lower-to-middle income Americans who are qualified to buy a home, but are unable to do so because of their current FICO score or often lack thereof will “specifically benefit from the GSEs using other credit scoring models.”