U.S. Reps. Ed Royce (R-California), Kyrsten Sinema (D-Arizona), and Terri Sewell (D-Alabama) reintroduced the Credit Score Competition Act, a bill that forces Fannie Mae and Freddie Mac to consider alternative credit scoring models when approving mortgage loans.
The Reps. argue that Fannie Mae and Freddie Mac dominate the secondary mortgage industry and their reliance on FICO equates to a monopoly of the market. In their statement, they say that FICO doesn’t consider on-time rent and utility payments. Alternative scoring models are more likely to take these things into consideration and raise the chances of an applicant to be approved for a mortgage. Rep. Sinema said “Fannie Mae and Freddie Mac should have the ability to look beyond traditional forms of credit.”
Joanne Gaskin, Senior Director, Scores & Analytics at FICO, gave a FICO perspective on the bill when it was initially introduced in an exclusive interview with DS News. Gaskin said that “in fact, the GSEs developed their own credit model to make the purchase decisions. The interesting thing is if we look outside of the mortgage space, the most widely used scoring model in the marketplace is FICO Score 8, which is not in use by the GSEs. So, the GSEs’ selection of a score does not create a monopoly.”
Even if the bill doesn’t move forward, Gaskin said that FICO is introducing a new scoring model called FICO Score XD. FICO XD scores are derived from how customers pay utility, cell phone, and cable bills and is being offered to bank credit card issuers to give unscorable consumers a chance. This scoring targets the “credit invisible;” about 50 million people who have no information in the three main credit repositories. Gaskin said “we have gone out and looked for compliant datasets that come from both Equifax and Lexis Nexis in order to create a score that will open a pathway to credit for those that are credit invisible today. This is a much better approach than just relaxing minimum credit score criteria and using stale data at the credit repositories in order to score more consumers.”