As we noted when FHFA first proposed its approach to alternative credit scores, the agency is not going gladly into a system Congress mandated for it in 2018’s EGRRCPA. This requires the agency to set up a process for model validation and approval that could lead to GSE adoption of alternative credit scores. The thrust of this statutory push was to force the GSEs to consider using VantageScore, a credit-bureau effort to dethrone FICO. Although the final rule subjects FICO to aspects of the new score-review process, its approval is secured. This prevents a lot of near-term anxiety given all the origination channels, loan-pricing, credit-enhancement, and pre-payment models premised on FICO. Whether any alternative score measures up is to be determined, but each of the GSEs on its own or, should they choose, together will set standards and FHFA will then decide if any new scores satisfy not only the GSEs but also itself.
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