By Nicole D. Prysby, J.D.
The Enterprises published a Joint Enterprise Credit Score Solicitation, which describes the process for credit score model developers to submit applications to the Enterprises. The solicitation is the first step in a multi-year process of evaluating new credit score models.
The Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac (the Enterprises) published a Joint Enterprise Credit Score Solicitation, the first step in the process of evaluating new credit score models. The Enterprises will accept applications from credit score model developers beginning May 18, 2020. The validation and approval of credit score models will be a multiyear effort by the Enterprises under requirements established by FHFA's final rule on the process for validation and approval of credit score models.
As previously reported, the FHFA announced publication of a final rule on the validation and approval of third-party credit score models that can be used by the Enterprises (see Banking and Finance Law Daily, Aug. 14, 2019). The rule implements the requirements in Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) enacted on May 24, 2018, and provides a four-phase process for an Enterprise to validate and approve credit score models.
The Enterprise Credit Score Solicitation requires that the Credit Score generated by a Model accurately reflect a borrower’s propensity to repay a mortgage loan in accordance with its terms, be generated by a Model that uses credit history information and data that is available in the archive of at least three credit reporting agencies, and be compliant with all applicable laws and regulations. The Enterprises will provide each applicant with reference data to be used to generate accredit score in accordance with the applicant’s designated scoring methodology. There is an upfront application fee of $200,000, intended to reimburse the Enterprises for the validation and approval process. There will be additional fees assessed, based on the remaining cost of the review work. The Enterprises will accept applications from May 18, 2020, through September 15, 2020. In validating and approving Models, the Enterprises will consider a Model’s integrity, reliability, and accuracy; its historical record of measuring and predicting credit behavior (such as default rates); and consistency of the Model with the safe and sound operation of an Enterprise.
There are additional detailed requirements available in the solicitation, such as corporate experience and specifics about the Model and Credit Score (for example, modeling techniques, algorithms, validation datasets, demonstrated use of the Model by customers). For each application that passes the Credit Score Assessment, the Enterprises will complete a Business Assessment of the applicant.
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