Credit Scoring Debate Climbs (Capitol) Hill

It’s no secret that legislation on Capitol Hill often gets mired in controversy and debate. And that’s especially true with a series of clashes over the regulatory relief bill wending its way through marbled halls.

American Banker reports that a provision in the legislation, which is likely to be passed by the Senate, centers on credit scoring. Some critics charge that the credit scoring legislation is redundant.

The provision is sponsored by Mike Crapo, Idaho Republican, who chairs the Banking Committee. The measure mandates that the Federal Housing Finance Agency (FHFA) must review credit scoring alternatives to FICO, the model deployed in mortgage decisioning and as utilized by Fannie Mae and Freddie Mac. The proposal, said the Banker, already overlaps a process in place by the agency, one where FHFA is looking at whether to adopt FICO 9, a new FICO score, or VantageScore 3.0 – or perhaps even a combination.

Against that backdrop, the two entities, FICO and VantageScore, which are in turned owned by the trio of credit bureaus, are of course in competition.

At least some analysts see VantageScore coming out ahead, should the legislation go through as planned. Capital Alpha Partners’ Charles Gabriel said via research note that the credit score provision is “a surprise victory for the three major credit reporting agencies” – which, again, have ownership of VantageScore.

“As we read it, under the language now set to become incorporated into” the bill on the Hill, “the GSEs would be compelled to begin soliciting applications from developers of credit scoring models within 90 days of an effective date falling 180 days after bill enactment, or likely near year-end 2018,” said the note.

Critics say the review of alternative credit scoring models is already underway at FHFA. FICO itself has said legislation is unnecessary – and as the Banker termed it, FICO maintains that “halting the FHFA review to replace it with a new process could ultimately delay the arrival of a new credit-scoring framework.”