A new report from the Progressive Policy Institute (PPI) explores pitfalls associated with some proposed reforms to credit score markets and discusses issues that should be addressed to keep competition in the market. The report, from contributing author Brodi Fontenot, is titled “Don’t Drive Up Mortgage Costs Through Unnecessary Changes.”
While the system of credit scoring used by Fannie Mae and Freddie Mac (the Enterprises) has been in effect for some time, Congress recently asked them — along with the Federal Housing Finance Agency (FHFA) — to review their credit scoring model to determine if additional models could be used to increase competition. But as Fontenot explains, the incorporation of a flawed new model could have unforeseen impacts and potentially drive up borrower costs.
The report concludes that the Enterprises have used a current credit scoring model that has produced necessary liquidity in the market in both good and difficult times — and that as the FHFA oversees the next phase of testing alternative credit score models, it should ensure that the models are subjected to scrutiny concerning the cost and market affects any change would have.
Read the full paper, expanded conclusion, and questions for consideration here.
Brodi Fontenot is President of Fontenot Strategic Consulting LLC. Mr. Fontenot was previously appointed by President Obama to be the Department of the Treasury’s Assistant Secretary for Management and was nominated to serve as Treasury’s Chief Financial Officer. Fontenot also served in a variety of senior roles at the Department of Transportation, including Assistant Secretary for Administration, Chief Human Capital Officer (CHCO), and Senior Sustainability Officer (SSO).
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
###
