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If you recall, I recently wrote about the intention of Fannie and Freddie to begin requiring a new expanded credit score model.
This new model will take into account a consumer’s credit trends (historical use of credit) plus begin the utilization of heretofore non-traditional credit sources (Credit Scores). It seems the good old FICO credit score ain’t so good no more.
In addition, new legislation, the Credit Score Competition Act, was introduced in Congress with bi-partisan support. How often do you hear of that happening lately? Does anything get bi-partisan support? Guess the credit lobbyists were working hard on both sides of the aisle.
The intent is to expand the credit scoring models to take into account more information about the consumer and utilize all potential sources that can produce a credit history. The idea is to get a much more complete picture of the credit patterns, and debt handling experiences of the consumer. The expectation is that this will help additional consumers qualify for credit, including mortgages. Sounds pretty good, eh?
More people qualifying for mortgages (at least on paper) – more homes get sold – better the homeownership rate. That makes the politicians look good. However, as I’ve said in the past, there is more to affording a home than just qualifying for a mortgage. Let’s keep that in mind, regardless of what credit score model we use.
Oh, by the way, the new expanded credit reporting models and related score (one was created by the 3 repositories) will increase the cost of the credit reporting. As almost, if not all, lenders are now integrated with their credit providers, the new formats, and increased data may also require more programming (just what we need on the heels of TRID). You guessed it, the cost of the new required credit reports will increase. Who pays?
This is just another hidden tax on homeownership. One that all new homeowners will pay regardless of whether they needed the new expanded credit profile or not. To service the needs of a few, the many will pay.
The Fed had better keep rates low for now; at least, until the economy recovers and wages start to rise. Otherwise, it won’t matter what credit model is used the first time. Low to moderate income homebuyers won’t be able to afford the loan, let alone the home.
