Editor's Note: National Mortgage Professional contributing writer Lew Sichelman is onsite at this week's Mortgage Bankers Association annual conference in Denver. This is one of a series of reports from the event, exclusively for NMP.
Much work still needs to be done before the new credit scoring models go into effect a year from now. So much so that panelists on a session at the Mortgage Bankers Association's (MBA) annual convention here conceded that the jumping off point may have to be postponed.
It all depends on Fannie Mae and Freddie Mac, moderator Shelly Leonard of Xactus, a verification firm, said from the podium. So far, the government-sponsored enterprises haven’t shown much of an inclination to help the adoption process along, the panelists agreed.
Right now, said one audience member, “they are missing from the conversation.”
Jay Plum of Fifth Third Bank is particularly nervous about mandatory implementation, which is currently set for the fourth quarter of 2025. “This is going to be pretty challenging,” he said. “It’s not either-or; it’s all.”
And he’s especially concerned about prices, not just to lenders like Fifth Third, but also to their customers. “It’s not as easy an implementation as it sounded from the beginning.”
Joseph Zeibert of FICO tried to ease Plum’s worries, saying his company will do whatever it can to support the transition. “We’re going to engage with the industry,” Zeibert said. “We’re here to work with you.”
But Plum, while appreciative for any assistance he can get, said he’s also “nervous” about how banking regulators will look at credit issues. “If the agencies and regulators are not aligned, that’s not an unreasonable worry,” the banker said.
As of now, the Federal Housing Finance Agency (FHFA) will require the lending business to switch from the traditional tri-merge to an optional bi-marge credit report incorporating two scoring models – VantageScore 4.0, which has been around for a while, and the new FICO 10-T.
To delay implementation “even one more day,” VantageScore’s Rikard Bandebo argued, would unfairly penalize the millions of borrowers that could potentially be cleared for a mortgage under either one of the two scoring models.
He said some 4.9 million-more people would be eligible for mortgage financing under his company’s scoring algorithm. And of that, 1.9 million could actually qualify.
Bandebo told the audience to "get ready now.” If they are not, he said, they may be forced to keep loans on their books that they would ordinarily sell on the secondary market.
Get familiar with the models and do pilot programs using them, he suggested. And moderator Leonard agreed. “Don’t wait until all the questions are answered. Then it’s too late. You’ve got to get going now,” she said. “This is going to be a monumental change for the industry.”
Eric Czajka of Rocket Mortgage said his company is in the process of “mapping out” all the processes and “trying to understand” how the credit piece impacts operations.
But other panelists wondered how consumers were going to buy into the changes. Worried that borrowers wouldn’t understand the differences between the two scoring models, they said a consumer education campaign would be necessary to bring them on board.
