Fannie, Freddie put off updating scoring systems

If you’ve been waiting to hear that the two dominant players in the mortgage arena — Fannie Mae and Freddie Mac — finally have decided to overhaul their creditscoring systems to expand homeownership opportunities to more people, sorry. Your wait just got a lot longer.

Despite intense pressure from Congress and advocacy groups, there will be no modernization of the controversial scoring systems before mid2019 at the earliest, Melvin Watt, director of the Federal Housing Finance Agency, said last week. This means retention of the system that uses FICO scoring models widely considered out of date, even by FICO, their developer.

Fannie’s and Freddie’s models date to the early years of the past decade and have long been superseded by more consumerfriendly versions. For example, the latest FICO model is more lenient on scoredepressing items such as paid-off collections and medical-bill collection accounts.

One major competitor to FICO, VantageScore Solutions, offers a model that claims to score 30 million-plus consumers currently “unscoreable” or invisible to older FICO models. VantageScore says if added to Fannie’s and Freddie’s menus, its model could “expand mortgage lending to Hispanics and AfricanAmericans to purchase homes by 16 percent.”

Part of the reason for the reluctance to change, industry experts say, is the major cost of retooling underwriting systems and potential complications for bond investors. Watt said the earliest practical time for change would be in two years, when Fannie and Freddie plan to introduce a new platform for mortgage bond market offerings.

But Watt also expressed concern that change could lead to “a race to the bottom with competitors competing for more and more customers.”