Today’s post on X from Federal Housing Finance Agency Director Bill Pulte came as a surprise to most housing-industry watchers, but no one is looking more closely for clarity than the nation’s taxpayers.
At the heart of Director Pulte’s 42-word statement is that the two taxpayer-backed mortgage liquidity giants Fannie Mae and Freddie Mac “will ALLOW lenders to use Vantage 4.0 Score with no current requirement to build new infrastructure (stays Tri Merge).”
NTU has long asserted that reliable, data-driven tools capable of consistently predicting lending risk in an unbiased manner are vital to protecting taxpayers from massive future bailouts of Government-Sponsored Enterprises (GSEs) like Fannie and Freddie. That’s why, through a landmark report, Risky Road, comments on public rulemakings, and communications to Congress, NTU has consistently sought to uphold the quality of the credit scoring process. At the heart of that process are the predictive models for the credit scores themselves, which should be subject to rigorous scrutiny and testing. We have warned policymakers—including Director Pulte’s predecessor Sandra Thompson—to make sure accurate data supporting safety and soundness, rather than a particular policy outcome, drive the competition among credit scoring systems.
Parsing Director Pulte’s words for meaning could affect trillions of dollars in Fannie’s and Freddie’s home mortgage liabilities (out of an overall housing market of $12 trillion) that taxpayers have explicitly guaranteed for more than 15 years. As NTU has consistently warned since the late 1980s, housing market risk from Government-Sponsored Enterprises has created a contingent liability that could, on its own, sink the nation’s balance sheet.
Does Director Pulte’s choice of the word “allow” in capital letters mean that lenders may choose which credit score model is best for their own needs? This would be a departure from former Director Sandra Thompson’s ill-advised, mandated approach to requiring the GSEs to employ two credit scoring models (FICO 10T and VantageScore 4.0). Director Pulte’s announcement that the “tri-merge” system requiring three instead of a proposed two homeowner credit checks would remain in place might be a relief for many lenders who want as thorough a risk view as possible. But does the word “current” in his X message mean that in the future, additional “infrastructure” mandates might lie ahead?
Left unresolved are other questions taxpayers have from Sandra Thompson’s tenure, including how and why the two-score mandate was reached. A report from the Inspector General for FHFA last year as well as congressional hearings did not get to the bottom of this serious matter.
It’s hard to imagine many sectors of our economy that are more receptive to clear, concise, and consensus-based policy communications than housing. And, as NTU mentioned in a post earlier this year, it’s even harder to imagine many other markets in which taxpayers have a greater stake than housing. For both these reasons, Director Pulte could provide great reassurance by issuing formal guidance with a request for public comment to explore the possible (but unconfirmed) change in direction announced on X today. He could also agree to provide greater public access to the records behind his predecessor’s decisions. FHFA’s primary pro-taxpayer mission of ensuring the housing GSEs operate “in a safe and sound manner” is too important to be left to speculation . . . or 42 words on X.