The Credit Union National Association (CUNA) recently offered some recommendations to the Federal Housing Finance Agency (FHFA) on its validation and approval process for credit score models.
In a letter to FHFA, CUNA acknowledged the need for cost-benefit analysis as a core component of its proposed validation and approval process. However, CUNA said the proposed cost-benefit analysis is “far from adequate” and only vaguely mentions lender implementation costs as a factor for consideration.
“Ultimately, it is critical that the FHFA’s final rule strike the appropriate balance between increasing competition in the credit-score market, preserving competition in the lender market by not, unintentionally, decreasing smaller lenders’ access to liquidity from the secondary market due to increased costs, and ensuring both consumers and lenders have certainty and predictability about the use of credit scores in their conventional mortgage decisions,” CUNA officials wrote in a letter to the FHFA. “That balance can only be properly achieved by requiring a robust cost-benefit analysis that includes pricing impact on lenders,” the letter adds.”
Increased competition in the credit-score industry could be beneficial to both consumers and lenders because it can improve efficiency, decrease pricing, and potentially expand the market for mortgage products. However, frequent modification of the GSEs credit-scoring models, or a requirement that they use multiple models, could discourage competition in the lending market by increasing costs for some smaller lenders.