WASHINGTON — A coalition of 35 housing and mortgage industry groups is urging the Federal Housing Finance Agency to move cautiously on proposed changes to mortgage credit score requirements, warning that sweeping revisions could increase the risk of another taxpayer-funded housing bailout.
In a letter sent to the FHFA, the groups cautioned that altering long-standing credit scoring standards without adequate safeguards could weaken underwriting discipline at Fannie Mae and Freddie Mac, the government-backed mortgage giants overseen by the agency.
‘Untested Models’
The organizations said credit scores play a critical role in assessing borrower risk and pricing mortgages appropriately. Changes that reduce their effectiveness or rely on untested models could lead to higher default rates, ultimately exposing taxpayers to losses if the housing market turns downward, the organizations stated.
“We strongly support expanding access to sustainable homeownership,” the letter said, but added that reforms should not come at the expense of safety and soundness in the housing finance system.
Review Under Way
The FHFA has been reviewing the use of traditional credit scoring models as part of broader efforts to modernize mortgage underwriting and potentially expand credit access to borrowers with limited credit histories. Consumer advocates have argued that alternative data could help bring more first-time and minority borrowers into the housing market.
But the housing groups said lessons from the 2008 financial crisis show the dangers of loosening credit standards too quickly. They warned that poorly calibrated changes could encourage riskier lending and undermine confidence in the mortgage-backed securities market.
Analysis UrgedThe coalition includes trade groups representing mortgage lenders, housing finance professionals and real estate interests. The letter called on the FHFA to conduct extensive analysis, solicit industry input and phase in any changes gradually
