Keeping Score

Navigating the Loan Level Labyrinth

Credit Scores are finally getting an update, but many questions remain.

Credit Scores are finally getting an update. The Federal Housing Finance Agency (FHFA) announced a multi-year effort to update the use of credit scores in Government Sponsored Entity (GSE) mortgage purchase, but many questions remain. To learn more, reach out to Potomac Point Group via LinkedIn or our website.

Borrower Loan Request

Lender Calculates Loan Level Score

GSE Preliminary Screening

Lender Underwrites and Originates Loan

GSE Loan Review and Approval

GSE Loan Purchase

Key Challenges

Potential for Higher Costs

With 2 separate models, 2 or 3 scores produced per model means up to 6 scores per borrower. This could increase origination costs.

Data Uncertainty

Availability and usage rules for “non-traditional” (e.g., rent and utilities) and trended data are still not clear

How to Produce a Loan Level Score?

New models produce two distinct scores for each borrower – still TBD how two scores will be used to yield one loan decision

Potential Adverse Impact

Different CRAs take in different data. Potential omission of one CRA score (with bi-merge) could give an incomplete picture of credit-worthiness