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After successfully pushing through bipartisan legislation that capped the salaries of the government-sponsored enterprise (GSE) chief executives, Rep. Ed Royce (R-CA) is taking a new aim at Fannie Mae and Freddie Mac with a bill that would change the GSE credit scoring process.
Rep. Royce, together with Rep. Terri Sewell (D-AL), has introduced HR 4211, the Credit Score Competition Act of 2015, which will allow the GSEs to use other credit scoring models besides FICO. Royce and Sewell based their legislation on the problems faced by would-be homebuyers—mostly low- and middle-income Americans—that have the wherewithal to responsibly pursue homeownership but are disqualified from consideration to a low or non-existent FICO score. The represents also noted that the GSEs maintain a near-monopoly on the secondary market and relying on FICO solely reinforces this dominance.
“The GSEs' use of a single credit score is an unfair practice that stifles competition and innovation in credit scoring,” said Rep. Royce. “Breaking up the credit score monopoly at Fannie and Freddie will also assist them in managing their credit risk and decreases the potential for another taxpayer bailout.”
“Fannie Mae and Freddie Mac are the largest mortgage purchasers in the nation, but they rely on credit score models that don’t necessarily take into account something as simple as whether borrowers have paid their rent on time,” added Sewell. “Homeownership is an integral part of the American Dream that shouldn’t be out of the reach for low-income, rural, and minority borrowers who lack access to traditional forms of credit. This legislation takes an important step towards addressing this issue and helps make homeownership a reality for more Americans across the country.”