by Walter Blanks Jr
Families across Tennessee have worked hard to rebuild wealth and stability after the 2008 housing crisis, a crisis fueled in part by irresponsible lending and credit models that ignored key indicators of financial risk. Today, the Federal Housing Finance Agency is on the verge of repeating those same mistakes.
Director Bill Pulte is pushing to implement VantageScore 4.0, a model owned by the three major credit bureaus. They are hardly an independent entity – with this new model, they would have a vertical monopoly of the entire mortgage market. In fact, the National Taxpayers Union has concerns that this unilateral decision could end up hurting taxpayers and our housing market.
And, Grover Norquist with Americans for Tax Reform expressed concern as well in a recent letter sent to Director Pulte where he urged him to, “Maintain fair and consistent credit score standards for loan applicants. You recently announced that you would allow lenders to use VantageScore 4.0 for underwriting mortgages. The move could erode the integrity of the housing market by heightening the risk of defaults and delinquencies for mortgages that collateralize Mortgage-Backed Securities (MBS). MBS held by Government Sponsored Enterprises (GSEs) constitute a $9 trillion market.”
Mr. Norquist continued stating, “The FHFA should protect taxpayers from a repeat of the 2008 bailout. Fannie and Freddie failed due to poor asset quality controls. To that end, GSEs should rigorously apply best practices when purchasing mortgages from originators.
Credit Scoring plays an important role in securing investor confidence and maintaining a smoothly operational market for agency-sponsored MBS.”
I share the concern that enabling the introduction of a “looser” standard could jeopardize our housing market by approving riskier mortgages that might not get approved under the existing FICO standard.
Right now, FICO serves as an independent check on the three major credit bureaus’ ambitions to control the entirety of the mortgage market. We need to support that check even more today as the Trump administration rightly prepares to release Fannie Mae and Freddie Mac from their conservatorship – a long-time priority for President Trump, Secretary Bessent, Senator Blackburn, Senator Hagerty and many others who have fought for shareholder rights for nearly two decades.
During this time of preparing to release Fannie Mae and Freddie Mac from their conservatorship – the last thing we need is any further instability to the housing or financial markets. I’m worried that upending the current FICO system in place of an untested VantageScore 4.0 model will cause more instability. We should rely on fully vetted, proven models, not tools being rushed into use without transparency or proper data.
FICO’s new 10T model builds on decades of battle-tested experience and FICO has been the trusted benchmark for assessing creditworthiness for years. Their new model adapts to modern financial trends without sacrificing the safeguards that keep families and taxpayers protected.
Congress – and not a single, unelected bureaucrat based in D.C., must decide such consequential changes. Director Pulte does not have the authority to impose a nationwide shift that affects every mortgage borrower in Tennessee and beyond.
Our community knows what happens when Washington gets this wrong.
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Walter Blanks Jr serves as Executive Director of Black Americans United for Tennessee.
