This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

65575 

Vol. 83, No. 245 

Friday, December 21, 2018 

1Section 310 defines ‘‘credit score’’ as, in 

relevant part, ‘‘a numerical value or a categorization 

created by a third party derived from a statistical 

tool or modeling system.’’ See 12 U.S.C. 1454(d)(1) 

and 1717(b)(7)(A)(i). The proposed rule would 

define this to mean that the statistical tool or 

modeling system was created by the third party. 

2The Enterprises use credit scores derived from 

credit score models. However, the validation and 

approval process would apply to the credit score 

model rather than the credit scores derived from the 

model. 

3An Enterprise automated underwriting system 

(AUS) is a proprietary system made available to 

Continued 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1254 

RIN 2590–AA98 

Validation and Approval of Credit 

Score Models 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Proposed rule. 

SUMMARY: The Federal Housing Finance 

Agency (FHFA) is proposing a rule on 

the process for validation and approval 

of credit score models by the Federal 

National Mortgage Association (Fannie 

Mae) and the Federal Home Loan 

Mortgage Corporation (Freddie Mac) 

(together, the Enterprises. FHFA 

requests public comment on all aspects 

of this proposed rule. 

DATES: FHFA will accept written 

comments on the proposed rule on or 

before March 21, 2019. 

ADDRESSES: You may submit your 

comments on the proposed rule, 

identified by regulatory information 

number (RIN) 2590–AA98, by any one 

of the following methods: 

• Agency website: www.fhfa.gov/ 

open-for-comment-or-input. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. If 

you submit your comment to the 

Federal eRulemaking Portal, please also 

send it by email to FHFA at 

RegComments@fhfa.gov to ensure 

timely receipt by FHFA. Include the 

following information in the subject line 

of your submission: Comments/RIN 

2590–AA98. 

• Hand Delivered/Courier: The hand 

delivery address is: Alfred M. Pollard, 

General Counsel, Attention: Comments/ 

RIN 2590–AA98, Federal Housing 

Finance Agency, Eighth Floor, 400 

Seventh Street SW, Washington, DC 

20219. Deliver the package at the 

Seventh Street entrance Guard Desk, 

First Floor, on business days between 9 

a.m. and 5 p.m. 

• U.S. Mail, United Parcel Service, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Alfred M. Pollard, General Counsel, 

Attention: Comments/RIN 2590–AA98, 

Federal Housing Finance Agency, 

Eighth Floor, 400 Seventh Street SW, 

Washington, DC 20219. Please note that 

all mail sent to FHFA via U.S. Mail is 

routed through a national irradiation 

facility, a process that may delay 

delivery by approximately two weeks. 

FOR FURTHER INFORMATION CONTACT: Beth 

Spring, Senior Policy Analyst, Housing 

& Regulatory Policy, Division of 

Housing Mission and Goals, at (202) 

649–3327, Elizabeth.Spring@fhfa.gov, or 

Kevin Sheehan, Associate General 

Counsel, (202) 649–3086, 

Kevin.Sheehan@fhfa.gov. These are not 

toll-free numbers. The mailing address 

is: Federal Housing Finance Agency, 

400 Seventh Street SW, Washington, DC 

20219. The telephone number for the 

Telecommunications Device for the Deaf 

is (800) 877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Comments 

FHFA invites comments on all aspects 

of the proposed rule and will take all 

comments into consideration before 

issuing a final rule. Copies of all 

comments will be posted without 

change, and will include any personal 

information you provide such as your 

name, address, email address, and 

telephone number, on the FHFA website 

at http://www.fhfa.gov. In addition, 

copies of all comments received will be 

available for examination by the public 

through the electronic rulemaking 

docket for this proposed rule also 

located on the FHFA website. 

Commenters are encouraged to review 

and comment on all aspects of the 

proposed rule, including the definition 

of a complete application, the timelines 

for submitting applications, and the 

standards and criteria for validation and 

approval of credit score models. 

II. Background 

A. Statutory Requirement for Validation 

and Approval of Credit Score Models 

Section 310 of the Economic Growth, 

Regulatory Relief, and Consumer 

Protection Act of 2018 (Pub. L. 115–174, 

section 310) amended the Fannie Mae 

and Freddie Mac charter acts and the 

Federal Housing Enterprises Financial 

Safety and Soundness Act of 1992 

(Safety and Soundness Act) to establish 

requirements for the validation and 

approval of third party credit score 

models by Fannie Mae and Freddie 

Mac.1 Section 310 does not require an 

Enterprise to use third party credit 

scores as part of its business operations 

or purchase decisions. Instead, it 

provides that if an Enterprise elects to 

condition the purchase of a mortgage 

loan on the provision of a borrower’s 

credit score, that credit score must be 

produced by a model that has been 

validated and approved.2

Section 310 imposes separate 

requirements on FHFA and the 

Enterprises. FHFA must first issue 

regulations establishing standards and 

criteria for the validation and approval 

of credit score models by the 

Enterprises. Each Enterprise must then 

publish a description of a validation and 

approval process that it will use to 

evaluate applications from credit score 

model developers, consistent with the 

standards and criteria established by 

FHFA regulation. Section 310 sets forth 

several factors that must be considered 

in the validation and approval process, 

including the credit score model’s 

integrity, reliability and accuracy, its 

historical record of predicting borrower 

credit behaviors (such as default), and 

consistency of any model with 

Enterprise safety and soundness. This 

proposed rule establishes criteria for the 

validation and approval process 

consistent with section 310. 

B. Current Enterprise Use of Credit 

Scores 

The Enterprises currently use credit 

scores in four primary ways. First, some 

Enterprise loan purchase programs 

require a minimum credit score as part 

of determining eligibility. Second, the 

Enterprises use credit scores within 

their automated underwriting systems 

(AUS).3 Freddie Mac uses credit scores 


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other parties (e.g., lenders and loan originators) to 

help them assess whether a loan is eligible for 

purchase by an Enterprise. 

4The Enterprises have required the use of FICO 

5 from Equifax, FICO 4 from TransUnion, and FICO 

Score from Experian, which are collectively referred 

to as ‘‘Classic FICO,’’ since 2004. 

5https://www.fhfa.gov/AboutUs/Reports/Report

Documents/2014StrategicPlan05132014Final.pdf. 

This goal aligns with the purposes stated in the 

Safety and Soundness Act and the Enterprises’ 

charter acts. 

6Since 2013, FHFA has issued an annual 

Conservatorship Scorecard that sets forth 

expectations for activities to be undertaken by the 

Enterprises to further FHFA’s strategic goals as 

conservator. Beginning in 2015, each 

Conservatorship Scorecard has called for the 

Enterprises to increase access to mortgage credit for 

creditworthy borrowers. This includes assessing the 

feasibility of updating the credit score requirements 

consistent with the Enterprises’ risk-management 

practices. 

7Currently, there are three nationwide CRAs— 

Equifax, Experian, and TransUnion. These 

companies gather, store, and sell consumer credit 

data, including credit scores that are produced by 

algorithms developed by other companies (e.g., 

FICO or VantageScore LLC) supplied with 

consumer credit data from a CRA. 

as part of the risk assessment within its 

AUS, while Fannie Mae uses credit 

scores as a minimum threshold in its 

AUS. Third, the Enterprises publish 

grids that disclose price adjustments 

known as Loan Level Price Adjustments 

(LLPAs) for Fannie Mae, and PostSettlement Delivery Fees (Delivery Fees) 

for Freddie Mac. LLPAs and Delivery 

Fees are based on a combination of the 

borrower’s representative credit score 

(currently Classic FICO) and the original 

loan-to-value (LTV) ratio.4 Finally, the 

Enterprises disclose credit scores to 

investors of Enterprise securities, to 

Credit Risk Transfer (CRT) investors, 

and in Securities and Exchange 

Commission (SEC) corporate filings. 

Where appropriate, the proposed rule 

would require an Enterprise to consider 

how credit scores are used in its systems 

as part of its evaluation of credit score 

models (e.g., consideration of LLPAs 

and Delivery Fees and potential impact 

on eligibility). However, the proposed 

rule would not require an Enterprise to 

use a credit score in any particular 

system, nor would it require an 

Enterprise to use a credit score in a 

particular way. While the Enterprises 

currently use credit scores in four 

primary ways, the Enterprises may 

change how they use credit scores in the 

future. 

For example, Freddie Mac currently 

uses a third party credit score (if 

available) combined with borrower 

attributes and credit attributes supplied 

by the nationwide consumer reporting 

agencies (CRAs) within its AUS. Fannie 

Mae uses borrower attributes and credit 

attributes from the nationwide CRAs. 

Fannie Mae also uses a third party 

credit score as an eligibility threshold 

for its AUS (currently, Classic FICO 620 

if available). The proposed rule would 

not require an Enterprise to use a credit 

score in a particular way in its AUS, or 

in any other system that uses a credit 

score. In addition, if an Enterprise does 

not currently use a third party credit 

score in a particular purchase system, 

the proposed rule would not require an 

Enterprise to incorporate a third party 

credit score into that system. 

Credit scores are only one factor 

considered by the Enterprises in 

determining whether to purchase a loan. 

Because an Enterprise AUS can consider 

borrower-related data independent of 

the consumer credit data from the 

consumer reporting agencies (e.g., 

income and assets) as well as additional 

information about the loan and property 

(e.g., LTV ratio), an Enterprise AUS will 

always be more accurate than any third 

party credit score model, used alone, at 

rank ordering loans by likelihood of 

borrower default. 

C. Conservatorship Scorecard Project To 

Assess Updating Enterprise Credit Score 

Requirements 

One of the strategic goals established 

by FHFA as conservator of the 

Enterprises has been to maintain credit 

availability for new and refinanced 

mortgages to foster liquid, efficient, 

competitive, and resilient national 

housing finance markets.5 One element 

of that strategic goal has been the 

consideration of possible changes to the 

credit score model required by the 

Enterprises.6 Although Classic FICO 

remains adequate for Enterprise 

purposes, FHFA has acknowledged 

potential benefits of the Enterprises 

using more recently developed credit 

score models. From 2015 to 2018, FHFA 

has engaged with the Enterprises, 

market participants and other interested 

parties on possible changes to the 

Enterprise credit score requirements, 

including understanding the operational 

challenges and hurdles of various 

updated credit score proposals. 

In response to FHFA’s 2015 

Conservatorship Scorecard, the 

Enterprises began assessing the 

feasibility of updating their credit score 

requirements, including the potential 

impact of a change on Enterprise 

operations and systems, and whether 

updating the requirements would 

generate additional access to mortgage 

credit for creditworthy borrowers while 

maintaining consistency with Enterprise 

credit requirements and riskmanagement practices. 

The 2015 assessment began by 

defining the scope of potential credit 

score models to review. FHFA and the 

Enterprises conducted an in-depth 

review of three models: Classic FICO, 

FICO 9, and VantageScore 3.0. While 

there were other credit score models 

available at that time, FHFA and the 

Enterprises limited the evaluation to 

credit score models that had nationwide 

coverage and that could produce credit 

scores based on data from all three 

nationwide CRAs.7 FHFA and the 

Enterprises determined it would not be 

practical to build and estimate 

Enterprise internal models for every 

credit score model available. 

In 2016, FHFA and the Enterprises 

met with lenders, consumer groups, 

investors, trade associations, and other 

market participants to discuss the 

possible impacts of changing the 

Enterprises’ credit score model 

requirements. FHFA was focused on 

better understanding how the industry 

uses credit scores and possible impacts 

to industry if the Enterprises were to 

make a change to their credit score 

model requirements. In addition, FHFA 

was focused on how long it might take 

the mortgage finance industry to adopt 

such a change. The independent 

outreach FHFA conducted in 2016 

informed the four proposals in the 2017 

Credit Score Request for Input (RFI). 

As part of the industry feedback, most 

market participants stated that they 

would need a significant period of time, 

approximately 18–24 months, to 

implement a credit score change after an 

announcement from the Enterprises. 

D. Credit Score Request for Input 

In 2017, FHFA determined that it 

would be useful to solicit input 

publicly. In December of 2017, FHFA 

issued an RFI on possible updates to the 

Enterprise credit score model 

requirements. The RFI was based on 

FHFA’s review of the operational 

impact of any credit score change and 

growing concerns about how 

competition should factor into the 

decision to update the credit score 

model. FHFA publicly communicated 

its intent to make a decision about the 

Enterprise credit score model 

requirements in 2018, upon finishing 

review of responses to the RFI. 

The RFI was focused on four 

proposals: (1) Maintain a single credit 

score; (2) adopt an optional waterfall of 

credit scores; (3) require multiple credit 

scores; or (4) let the lender choose the 

credit score. The RFI sought public 

input on the concerns market 

participants had expressed to FHFA, 

including concerns about the potential 

costs and benefits of updating the 

Enterprise credit score requirements. 


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8RFI responses are available online on FHFA’s 

website at https://www.fhfa.gov/AboutUs/Contact/ 

Pages/input-submissions.aspx (select ‘‘Credit 

Score’’ in the menu). 

9 Desktop Originator/Desktop Underwriter 

Release Notes, DU Version 10.0, Fannie Mae (Last 

Updated June 20, 2016) https://

www.fanniemae.com/content/release_notes/du-dorelease-notes-06252016.pdf. 

10http://freddiemac.mwnewsroom.com/pressreleases/freddie-mac-loan-advisor-suite-sm-to-cutmortgage-otcqb-fmcc-1282556. 

FHFA encouraged all parties to provide 

as much information and insight as 

possible in response to the RFI. 

FHFA received over 100 responses to 

the RFI.8 The responses came from all 

parts of the mortgage finance industry 

including consumers, mortgage lenders, 

mortgage insurers, and non-profit 

housing agencies. A central theme from 

RFI respondents was that the 

operational challenges of implementing 

a multi-credit score approach would 

outweigh any benefits. As one RFI 

respondent noted, ‘‘changes to 

Enterprise credit score requirements 

could have widely-felt implications for 

borrower access to credit, origination 

costs in the primary mortgage market, 

the ability to fully analyze and properly 

price mortgage credit risk, and liquidity 

in the secondary mortgage market.’’ 

E. Effect of the Act on the 

Conservatorship Scorecard Project 

FHFA was in the process of making a 

determination on updating the 

Enterprise credit score requirements 

when the Economic Growth, Regulatory 

Relief, and Consumer Protection Act 

was enacted on May 24, 2018. Although 

FHFA had announced its intent to make 

a decision about the Enterprise credit 

score model requirements in 2018, 

FHFA announced in July 2018 that it 

was shifting its focus to development of 

notice and comment rulemaking to 

implement the credit score requirements 

consistent with section 310. FHFA 

stated that it would not make a decision 

on updating the credit score required by 

the Enterprises until after the credit 

score model validation and approval 

process required by section 310 has 

been established. 

F. Assessment of Borrowers Without 

Credit Scores 

Each Enterprise has updated its 

respective AUS in recent years to 

process loans for borrowers who lack a 

credit score. In September 2016, Fannie 

Mae upgraded Desktop Underwriter 

(DU) with the capability to underwrite 

loan applications where both the 

borrower and co-borrower lack a credit 

score.9 In June 2017, Freddie Mac 

updated Loan Product Advisor (LPA) 

with the same capability to underwrite 

both borrower and co-borrowers who 

lack a credit score.10 Development of the 

‘‘no score AUS’’ reduces the 

significance of third party credit scores 

within each Enterprise’s AUS. The 

Enterprises’ guidance to lenders related 

to borrowers who lack a credit score 

now provides that if a borrower has 

other housing-related tradelines (such as 

demonstrated rental payments or utility 

payments), those borrowers can be 

evaluated through the AUS. The ability 

of an Enterprise AUS to assess 

borrowers who lack a credit score is an 

additional consideration in assessing 

the impact of the use of any credit score 

model on access to credit. 

G. Development of Proposed Rule 

Reflects Public Input Received 

In developing the proposed rule, 

FHFA has given careful consideration to 

all aspects of the 2015, 2016, and 2017 

Scorecard projects and related work. 

The proposed rule also has been 

informed by responses to the RFI. For 

example, FHFA considered feedback 

received from the industry related to 

some of the operational and 

implementation concerns in 

determining how often it would be 

feasible for the Enterprises to update 

their credit score requirements. 

Based on research and analysis 

conducted for the past three years, a 

primary consideration in FHFA’s 

analysis has been weighing the costs of 

adopting a newer credit score model 

against the potential benefits. The 

significant costs and complexity for the 

Enterprises and industry in making a 

change to the required credit score were 

weighed against potential improvements 

in accuracy and borrower access to 

credit. More recently developed credit 

score models capture post-crisis 

borrower behavior, which more 

accurately reflects today’s borrowers 

than older models, and also include 

rental payment data, when available. 

While a newer credit score model would 

likely be more accurate than an existing 

credit score model, a borrower’s credit 

score is not the only factor used by an 

Enterprise AUS to make a purchase 

decision, reducing the significance of 

any improvement in accuracy. 

The proposed rule reflects FHFA’s 

balancing of these costs and benefits 

and is based on both the requirements 

of section 310 and multiple years of 

public outreach and empirical research 

by FHFA and the Enterprises. 

III. Features of the Proposed Rule 

A. Enterprise Validation and Approval 

Process 

The proposed rule would establish a 

four-phase validation and approval 

process: (1) Solicitation of applications 

from credit score model developers, (2) 

an initial review of submitted 

applications, (3) Credit Score 

Assessment, and (4) Enterprise Business 

Assessment. In addition, the proposed 

rule would set the minimum standards 

and criteria for each step in the process. 

As part of the solicitation phase of the 

process, each Enterprise would publish 

a Credit Score Solicitation that would 

include the opening and closing dates of 

the solicitation time period during 

which the Enterprise would accept 

applications from credit score model 

developers. It would include a 

description of the information that must 

be submitted with the application; 

instructions for submitting the 

application; a description of the 

Enterprise process for obtaining data for 

testing; a description of the Enterprise’s 

process and criteria for conducting a 

Credit Score Assessment and an 

Enterprise Business Assessment; and 

other content as determined by an 

Enterprise. 

As part of the application review 

phase of the process, an Enterprise 

would determine whether each 

application submitted by a credit score 

model developer is complete. An 

Enterprise could request additional 

information if necessary. An application 

would be complete only after the 

Enterprise has received all required fees 

and information, including any 

necessary data from a third party. An 

Enterprise would not be obligated to 

conduct an assessment of a credit score 

model if an Enterprise is not in receipt 

of a complete application within the 

timeframes in this proposed rule. 

During the Credit Score Assessment 

phase of the process, each credit score 

model would be assessed for accuracy, 

reliability and integrity, independent of 

the use of the credit score in the 

Enterprise’s systems, as well as any 

other requirements established by the 

Enterprise. A credit score model must 

pass the Credit Score Assessment to be 

reviewed by an Enterprise during the 

Business Assessment phase. 

During an Enterprise Business 

Assessment phase, which is the fourth 

and final phase of the process, an 

Enterprise would assess the credit score 

model in conjunction with the 

Enterprise’s business systems. The 

Enterprise must assess the accuracy and 

reliability of credit scores where used 

within the Enterprise’s systems, 


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11See, e.g., Uniform Mortgage-Backed Security 

proposed rule, 83 FR 46889 (Sept. 17, 2018). 

possible impacts on fair lending and 

impact on the Enterprise’s operations 

and risk management. An Enterprise 

also must consider impacts on the 

mortgage finance industry, assess 

competitive effects, conduct a third 

party vendor review, and perform any 

other evaluations established by the 

Enterprise as part of the Enterprise 

Business Assessment. A credit score 

model may be approved by an 

Enterprise during the Business 

Assessment phase, and only then would 

the credit score model be considered 

validated and approved for purposes of 

section 310. 

The Credit Score Assessment and 

Enterprise Business Assessment steps 

may not necessarily happen 

sequentially. However, in order for a 

credit score model to be approved for 

use, the credit score model would have 

to pass both a Credit Score Assessment 

and an Enterprise Business Assessment. 

The proposed rule would require that an 

Enterprise update its credit score 

requirements to reflect the outcome of 

the validation and approval process. 

However, the proposed rule does not 

address how an Enterprise’s credit score 

requirements would be updated should 

a new credit score model be approved. 

How approved credit score model(s) are 

implemented, including the timeframe 

for the Enterprises to transition from 

one credit score to another score or 

scores, would be best addressed through 

direction that will be provided by FHFA 

outside of the final rule but consistent 

with FHFA statutory obligations. 

FHFA requests comment on any 

operational impacts or considerations 

that should be addressed in 

implementing any newly approved 

credit score models, including timing 

between approval of any new credit 

score model and required delivery of the 

new score(s) to an Enterprise or whether 

there are issues related to 

implementation that are not covered by 

the proposed rule. 

B. Timeframes for Enterprise 

Application Determinations 

A key consideration in structuring the 

process in four phases is to address the 

statutory requirements of section 310, 

which references solicitation, 

application, validation, and approval. 

Section 310 also requires the Enterprises 

to make ‘‘a determination with respect 

to any application submitted’’ and 

provide notice of that determination no 

later than 180 days after the date on 

which an application is submitted, 

subject to two 30-day extensions. 

The proposed rule would require each 

Enterprise to complete the Credit Score 

Assessment in no more than 180 days, 

with the possibility of no more than two 

30-day extensions. The proposed rule 

would establish a separate 240-day 

maximum time period for the 

Enterprises to conduct the Enterprise 

Business Assessment. As discussed 

above, the Credit Score Assessment and 

Enterprise Business Assessment could 

overlap. However, the maximum, 

combined time for these two parts of the 

process could be as much as 

approximately 16 months depending on 

whether FHFA granted any extensions 

for the Credit Score Assessment. This 

proposal aligns with FHFA’s knowledge 

of the time needed to conduct testing 

similar to the testing proposed for the 

Credit Score Assessments. Based on 

FHFA and Enterprise experience 

assessing credit score models and the 

process outlined in this proposed rule, 

FHFA determined 180 days, or even 240 

days, would not give an Enterprise 

sufficient time to conduct both the 

Credit Score Assessment and the 

Enterprise Business Assessment for all 

possible applications submitted during 

the solicitation period. 

By taking this approach, the proposed 

rule would establish reasonable and 

realistic deadlines for each phase of the 

process—solicitation period, application 

review, Credit Score Assessment, and 

Enterprise Business Assessment. The 

proposed rule would establish a time 

period for application submission that 

includes a review for completeness and 

notification to an applicant to address 

deficiencies, before the solicitation 

period ends and the Credit Score 

Assessment begins. An Enterprise 

would be required to notify an applicant 

of its determination under the Credit 

Score Assessment within 180 days from 

the start of the Credit Score Assessment, 

with up to two extensions of 30 days 

each, consistent with section 310. These 

timeframes may be adjusted based on 

future public notice and comment as 

FHFA and the Enterprises gain 

experience with the validation and 

approval process. 

Under the proposed rule, the 

determination that a credit score model 

passes the Credit Score Assessment 

would be separate from the 

determination that a credit score model 

meets the criteria of an Enterprise 

Business Assessment resulting in 

Enterprise approval. A credit score 

model would only be approved if an 

Enterprise determines that it meets the 

criteria under both the Credit Score 

Assessment and an Enterprise Business 

Assessment. The Enterprise Business 

Assessment would allow an Enterprise 

to complete a comprehensive 

assessment of the impact of a new credit 

score when used in an Enterprise’s 

proprietary systems, fair lending impact, 

impact on Enterprise operations, 

Enterprise risk management and impact 

to industry, as well as any other criteria 

evaluated by an Enterprise. The 

proposed rule would provide an 

Enterprise 240 days to complete the 

Enterprise Business Assessment. This 

would be in addition to the maximum 

240 days (including extensions) to 

complete the Credit Score Assessment 

phase. 

C. Alignment of Enterprises 

FHFA may direct the Enterprises to 

align their assessment processes or the 

decisions on approved credit score 

model(s) under FHFA’s authority as 

regulator or conservator of the 

Enterprises. For example, FHFA may 

determine as regulator that it is 

necessary to align the Enterprises on 

approved credit score model(s) to help 

maintain efficiency and liquidity in the 

secondary mortgage market, a core 

purpose of the Safety and Soundness 

Act and the charter acts. Or FHFA may 

determine that alignment is necessary to 

facilitate the Enterprise credit risk 

transfer (CRT) programs or the 

development and implementation of the 

Uniform Mortgage-Backed Security 

(UMBS).11

While the Enterprises remain in 

conservatorship, on the same basis 

FHFA could use its authority as 

conservator of the Enterprises to direct 

the Enterprises to adopt aligned 

validation and approval processes or 

outcomes. FHFA may also use its 

existing authority as regulator or 

conservator to establish other credit 

score requirements for the Enterprises. 

For example, FHFA may require the 

Enterprises to continue to require 

lenders to deliver loans with a single 

credit score, or FHFA may require the 

Enterprises to allow use of more than 

one credit score for delivery of loans. 

The proposed rule would require the 

Enterprises to provide FHFA with prior 

notice of a determination to approve an 

application. Such prior notice would 

provide FHFA with an opportunity, if 

appropriate, to require the Enterprises to 

adopt aligned determinations on some 

or all applications. However, the 

proposed rule itself would not require 

alignment of the Enterprises. The 

proposed rule would allow the 

Enterprises to adopt independent and 

distinct validation and approval 

processes, to conduct separate 

evaluations of any application received 

and to reach different decisions about 


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12https://www.fhfa.gov/Media/PublicAffairs/ 

PublicAffairsDocuments/CreditScore_RFI-2017.pdf, 

pg. 19. 

which credit score models are validated 

and approved for use. 

FHFA expects that the Enterprises 

will regularly consult with FHFA, in the 

Agency’s role as regulator or as 

conservator. FHFA would retain its 

ability, in its role as regulator or 

conservator, to provide the Enterprises 

with guidance on alignment and the use 

of one credit score model or multiple 

credit score models at any point in the 

Enterprises’ solicitation and review 

process. However, the proposed rule 

would not address how multiple credit 

score models, if approved, would be 

implemented and/or required by an 

Enterprise. These decisions could be 

handled through FHFA’s authority as 

regulator or as conservator. 

FHFA requests comments on the 

approaches described above. In 

addition, FHFA requests comments on 

whether the Agency should consider 

alternatives to these approaches. 

D. Credit Score Model Developer 

Independence 

The proposed rule would prohibit an 

Enterprise from approving any credit 

score model developed by a company 

that is related to a consumer data 

provider through any common 

ownership or control, of any type or 

amount. The proposed rule would also 

require the Enterprises to consider 

competitive impacts more generally in 

assessing applications from credit score 

model developers. In developing this 

approach, FHFA has considered and 

worked to balance a number of policy 

concerns, including potential conflicts 

of interest, potential competitive effects 

(positive and negative), and burdens on 

prospective applicants and the 

Enterprises. 

The Credit Score RFI, as discussed 

earlier, sought input on credit score 

competition and consolidation in the 

credit score marketplace. Feedback 

indicated concerns with the competitive 

position of VantageScore, LLC when 

compared to other credit score model 

developers, by virtue of its joint 

ownership by three nationwide 

consumer reporting agencies (CRAs). 

The CRAs own the data that both 

VantageScore, LLC and its competitors 

use to build their credit score models. 

They also set the prices for the different 

credit scores, subject to any license fees 

charged by the credit score model 

developer. Each CRA has the ability to 

set the prices for its own use, or an 

affiliated company’s use, of the 

consumer credit data that is reported to 

that CRA. Vertical integration with a 

credit score model developer could, in 

theory or practice, permit the CRA to 

sell credit scores constructed from data 

(including the scoring algorithm) that 

the CRA owns more cheaply. 

Given these considerations, FHFA 

believes it is appropriate to propose 

prohibiting common ownership or 

control of the credit score model 

developer and the owner of consumer 

credit data. To implement this 

prohibition, the proposed rule would 

require each application to include a 

certification that no owner of consumer 

data necessary to construct the credit 

score model is related to the credit score 

model developer through common 

ownership or control. Establishing a 

clear threshold requirement in the 

application process will put an 

applicant on notice that, unless it can 

make that certification, its application 

will not be approved. This approach is 

intended to avoid a party with a 

prohibited relationship expending time 

and money to complete and submit an 

application with associated fees that an 

Enterprise ultimately would not validate 

and approve. 

The proposed rule seeks to avoid a 

possible negative impact on competition 

among credit score models, for example 

if pricing of credit scores and consumer 

credit reports were used to reduce 

competition and, thereafter, to increase 

prices. Although the proposed 

prohibition could limit the number of 

possible credit score model developers 

that would be able to submit an 

application, it would ensure that any 

approved credit score model would not 

unfairly benefit the institution that 

developed the credit score model. To 

date, FHFA has not identified a degree 

of common ownership or control that 

would clearly avoid its concerns. 

Therefore, even a minority ownership 

interest would be subject to the 

prohibition. FHFA requests comment on 

whether there are examples of common 

ownership or control by type or amount 

that would not reasonably give rise to 

anti-competitive concerns or if there are 

other safeguards that could address or 

avoid such concerns. 

FHFA also believes changing or using 

a new credit score model could have 

other competitive effects, or give rise to 

other conflicts of interest, that should be 

considered by an Enterprise in 

determining whether to approve a 

model. While feedback on the Credit 

Score RFI focused on competition 

concerns related to the joint-ownership 

structure of VantageScore, LLC, the 

proposed rule would require the 

Enterprises to consider competition 

concerns more broadly. FHFA has 

previously stated that its ‘‘objective is 

not to help any particular company sell 

more credit scores, but to determine 

how to appropriately balance the safety 

and soundness of the Enterprises while 

maintaining liquidity in the housing 

finance market,’’ and this remains the 

case.12

The proposed rule would require an 

Enterprise to consider potential 

conflicts of interest and competitive 

effects in assessing the costs and 

benefits of approving any credit score 

model in the Enterprise Business 

Assessment. An applicant would be 

required to provide information on any 

business relationship with any other 

party that may give rise to a conflict of 

interest beyond the upfront application 

certification of whether it is related to 

a data provider (including information 

about the credit score model developer’s 

corporate and governance structure, and 

any ownership, control, or relationship 

to any other institution). An Enterprise 

also would be required to consider other 

potential effects on competition, 

including positive effects. 

FHFA requests comment on the 

proposed approach of requiring an 

upfront certification in addition to an 

assessment of competitive effects in the 

Enterprise Business Assessment. FHFA 

also requests comment on any 

alternative approaches for assessing and 

evaluating conflicts of interest and other 

competitive effects. 

IV. Summary of the Proposed Rule 

A. No Required Use of Credit Scores; No 

Expectation of Continued Use 

The proposed rule would set forth 

requirements and limitations on how 

the Enterprises validate and approve 

credit score models. Section 310 does 

not require the Enterprises to use a 

credit score for any purpose. It does 

require, however, that if an Enterprise 

elects to condition its purchase of 

mortgages on provision of a credit score, 

that score must be derived from a model 

that has been validated and approved in 

accordance with statutory and 

regulatory requirements. Likewise, if an 

Enterprise elects to condition its 

purchase of mortgages on provision of a 

credit score, it also must use the 

validated and approved credit score in 

all of its purchase-related systems and 

procedures that currently use a credit 

score. The proposed rule would 

incorporate these statutory provisions 

and would address several related 

situations. 

First, the proposed rule would 

expressly state that an Enterprise is not 

required to use a third party credit 

score. For example, if an Enterprise in 

the future no longer uses a third party 


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credit score in any purchase-related 

systems or procedures, the Enterprise 

would not be subject to the 

requirements of this proposed rule. 

However, if an Enterprise continues to 

price loans based on credit score and 

LTV ratios (LLPAs and Delivery fees), 

the Enterprise would still be subject to 

the requirements of this proposed rule, 

even if the Enterprise no longer used 

credit scores in any other manner. 

Second, the proposed rule would 

expressly state that an Enterprise is 

permitted either to replace an existing 

credit score model with a newly 

approved credit score model or to 

continue to use the existing credit score 

model along with the newly approved 

credit score model. For example, if an 

Enterprise is using a validated and 

approved score, and in response to a 

new solicitation validates and approves 

a new credit score, an Enterprise could 

‘‘retire’’ the existing validated and 

approved credit score. This would be 

considered replacement of an existing 

model. Alternatively, an Enterprise 

would have the option to use both the 

existing validated and approved credit 

score model and the new validated and 

approved credit score model. Section 

310 expressly permits replacement of 

one validated and approved credit score 

model with another validated and 

approved model, and it does not 

establish any standard for replacement, 

other than that the models must be 

validated and approved. 

Finally, the proposed rule would 

expressly state that the use of a credit 

score by an Enterprise does not create 

any right or expectation to continued 

use of that credit score. Section 310 

does not require an Enterprise to 

continue to use previously validated 

and approved credit score models. 

Section 310 does not create, and FHFA 

does not recognize, any right or 

expectation of a party with an interest 

in a credit score model used by an 

Enterprise to its continued or 

continuing use. Under the statute and 

under the proposed rule, an Enterprise 

would have the option to stop using a 

previously approved credit score model, 

with no obligation or liability of any 

kind. 

B. Enterprise Solicitation of 

Applications From Credit Score Model 

Developers 

1. Overview 

The proposed rule would permit 

FHFA periodically to require the 

Enterprises to solicit applications from 

credit score model developers. The 

proposed rule addresses the solicitation 

process, the required content of an 

Enterprise solicitation, and the review 

of Enterprise proposed solicitations by 

FHFA prior to Enterprise publication. 

FHFA would establish the need for an 

Enterprise solicitation by notice to the 

Enterprises. Because assessing a credit 

score model is time-consuming and 

requires the acquisition of significant 

amounts of consumer credit data, and 

because of the potentially significant 

implementation costs to industry, it 

would not be efficient or cost effective 

(for an Enterprise, an applicant, or other 

market participants) to require that an 

Enterprise consider applications for 

validation and approval submitted at 

any time. Instead, the proposed rule 

would allow FHFA to establish a 

periodic solicitation process. 

Under the proposed rule, an 

Enterprise would not be required to 

consider any application that is not 

received in response to a particular 

solicitation. An Enterprise could review 

and conduct preliminary empirical 

analysis on any application received 

outside of a particular solicitation. 

However, an Enterprise would not be 

permitted to approve any application 

not submitted in response to a 

solicitation. Outside of the periodic 

solicitations required by FHFA, there 

would be periods of time during which 

an Enterprise would not be expected or 

required to solicit applications and 

during which any credit score it is then 

using would not be subject to change. 

The proposed rule addresses timing 

requirements for the first solicitation for 

applications, while also creating a 

framework for setting similar deadlines 

for future solicitations. 

The proposed rule would require 

FHFA to review and approve each 

Credit Score Solicitation from an 

Enterprise. The proposed rule would 

require that, after an Enterprise receives 

notification from FHFA, the Enterprise 

publish the description of its validation 

and approval process prior to, and in 

conjunction with, soliciting 

applications. This approach would 

ensure that potential applicants and the 

public are provided with information 

about regulatory and Enterprise 

requirements and considerations. Thus, 

the Enterprise description, which the 

proposed rule refers to as a ‘‘Credit 

Score Solicitation,’’ would cover the 

Enterprise’s validation and approval 

process as well as requirements that an 

application, and the applicant, must 

meet in order for a credit score model 

to be considered by an Enterprise. The 

publication of the Enterprise Credit 

Score Solicitation would satisfy section 

310’s requirement that an Enterprise 

‘‘make publicly available’’ a description 

of its validation and approval process. 

Under the proposed rule, the 

solicitation process would involve: (1) A 

notice from FHFA to the Enterprises 

informing the Enterprises that FHFA has 

determined that a review of new credit 

score models is timely; (2) development 

of a Credit Score Solicitation by each 

Enterprise; (3) review of each 

Solicitation by FHFA; (4) publication of 

the Solicitation by each Enterprise; and 

(5) a time period, determined by FHFA 

and communicated through the 

Enterprises to the public, during which 

the Enterprises will accept applications 

for validation and approval of credit 

score models. These steps are addressed 

below. 

2. FHFA Notice to the Enterprises To 

Solicit Applications 

The proposed rule states FHFA’s 

authority to determine when an 

Enterprise is required to solicit 

applications from credit score model 

developers. An Enterprise would not be 

permitted to solicit applications except 

in response to a notice from FHFA. In 

general, FHFA would provide notice to 

an Enterprise establishing when the 

Enterprise must begin soliciting 

applications, the length of time the 

solicitation period is open and 

applications will be accepted, and the 

deadline for an Enterprise to submit its 

proposed Credit Score Solicitation to 

FHFA for review. 

To establish a reasonable expectation 

of when an Enterprise would be 

required to initiate a validation and 

approval process, the proposed rule 

would provide that FHFA require a 

solicitation every seven years, 

determined from the date of the 

preceding solicitation, except as 

otherwise determined by FHFA. 

Requiring a solicitation any more 

frequently would lessen the likelihood 

that the benefits of transitioning to a 

new score would outweigh its costs, 

including costs to applicants and the 

Enterprises to assess a proposed new 

model. In proposing seven years, FHFA 

has attempted to balance those concerns 

and establish a realistic timeframe not 

only for the Enterprises but for the rest 

of the mortgage finance industry. FHFA 

is seeking comment on whether the 

proposed seven year solicitation of 

applications from credit score model 

developers is too frequent or not 

frequent enough. 

The proposed rule also would permit 

FHFA to require the Enterprises to 

solicit applications either sooner or later 

than seven years, in appropriate 

circumstances. For example, FHFA may 

determine not to initiate a solicitation 

within seven years, and thus that a 

credit score in use in the future should 


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13 12 U.S.C. 1454(d)(8) and 1717(b)(7)(H). 

continue to be used, because the cost to 

industry of changing from one score to 

another could be avoided and any 

intended benefit of a new score could be 

achieved by an enhancement to an 

Enterprise AUS instead. In proposing a 

very flexible approach to determining 

the time between Enterprise 

solicitations, FHFA is seeking to balance 

the value of a reasonable public 

expectation that the Enterprises will 

periodically review updated credit 

scores, with the ability to act when 

circumstances indicate that the 

regulatory time period is either too long 

or too short. 

The proposed rule would require that 

the process for the initial solicitation 

begin within 60 days of the effective 

date of the final rule. The initial 

solicitation time period would begin on 

a date determined by FHFA and would 

extend for 120 days. 

3. Enterprise Development of a Credit 

Score Solicitation and Content 

For solicitations after the initial 

solicitation, each Enterprise must 

develop a Credit Score Solicitation after 

receiving a notice from FHFA. The 

Credit Score Solicitation would describe 

the Enterprise validation and approval 

process, which must be in accordance 

with the minimum standards and 

criteria of the regulation. 

The Credit Score Solicitation also 

would address the Enterprise process 

for assessing credit score models, as 

well as standards or criteria for 

accuracy, reliability, and integrity, and 

any method of demonstrating that the 

credit score has a historical record of 

measuring and predicting credit 

behaviors, including default rates, 

consistent with section 310. The 

proposed rule would establish 

minimum standards and criteria for 

validation and approval of credit score 

models. An Enterprise may have valid 

business reasons for imposing 

additional standards and criteria. 

Section 310 and the proposed rule both 

permit additional standards to be 

imposed by an Enterprise and such 

additional standards, criteria, or 

requirements would be addressed in the 

Credit Score Solicitation. 

4. FHFA Review of Enterprise 

Solicitation 

The proposed rule would require an 

Enterprise to submit a Credit Score 

Solicitation to FHFA for review prior to 

the start of any solicitation period. 

FHFA review will allow the Agency to 

object to any additional Enterprise 

standards, criteria or requirements or to 

impose any terms, conditions or 

limitations that FHFA determines 

appropriate. The proposed rule would 

establish a 45-day period for FHFA 

review, which may be extended by 

FHFA if necessary. 

Because a notice from FHFA requiring 

a new solicitation would require each 

Enterprise to submit a current Credit 

Score Solicitation to FHFA for review, 

the review also would meet the 

statutory requirement that FHFA 

‘‘periodically’’ review the Enterprise’s 

validation and approval process to 

ensure the process remains appropriate, 

adequate, and in compliance with 

applicable FHFA regulations and 

requirements.13 This does not mean, 

however, that FHFA could not review 

the Enterprise’s approval and validation 

process as part of its usual supervisory 

processes, including examinations. 

Further, FHFA review and approval of 

an Enterprise Credit Score Solicitation 

would not prevent FHFA from taking 

any subsequent appropriate supervisory 

action. 

5. Timeframes for Solicitation 

The proposed rule would provide that 

each Enterprise make publicly available 

its Credit Score Solicitation for at least 

90 days prior to the start of the 

solicitation period. In order to ensure 

that the Enterprises are accepting 

applications during the same time 

period, FHFA expects to require each 

Enterprise to publish its Credit Score 

Solicitation on the same date. Once the 

initial solicitation period begins, it 

would extend for 120 days. For 

subsequent solicitations, FHFA would 

determine both the frequency of the 

solicitations and the length of a 

particular solicitation period. FHFA 

recognizes that for subsequent 

solicitation periods, 120 days may not 

be suitable and therefore builds into the 

regulation the flexibility to allow for a 

longer or shorter timeframe that would 

better serve applicants and the housing 

industry. The timeframes for the initial 

solicitation are illustrated in Figure 1. 

These timeframes ensure that the 

Credit Score Solicitation is handled in 

an expeditious manner while providing 

applicants sufficient time to review the 

fees and the information required for a 

complete application prior to expending 

resources to submit an application. The 

proposed timeframes are consistent with 

timeframes in practice between FHFA 

and the Enterprises for reviewing and 

responding to proposals. 

C. Enterprise Initial Review of 

Submitted Applications 

1. Overview 

The proposed rule would establish 

the criteria an application must meet to 

be considered complete. Each applicant 

would be required to submit: (1) An 

application fee; (2) a fair lending 

certification; (3) information to 

demonstrate use of the model by 

industry; (4) a conflicts-of-interest 

certification and other information on 

credit score model developer 

qualifications; and (5) any other 

information required by an Enterprise in 

the Credit Score Solicitation. An 

application would not be considered 

complete until an Enterprise has 

obtained any data necessary for testing. 

An application would be complete 

when an Enterprise determines that the 


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14 15 U.S.C. 1691(a) (ECOA); 42 U.S.C. 3605(a) 

(Fair Housing Act); 12 U.S.C. 4545(1) (Safety and 

Soundness Act). 15 12 CFR 1002.2(p), 1002.9(b)(2). 

16See generally, 12 U.S.C. 4513b; see also 12 CFR 

parts 1236 and 1239. 

required information has been received 

from the applicant and any third party 

(i.e., any data requested from a third 

party on behalf of the applicant). 

Under the proposed rule, an 

Enterprise would have no obligation to 

assess any incomplete application. As 

required by section 310, each applicant 

would receive an application status 

notice informing the applicant of any 

additional information needed in 

conjunction with an application. If an 

Enterprise determines that an 

application is incomplete, or has 

questions about information provided, 

the applicant would have the 

opportunity to respond within the 120- 

day solicitation period. FHFA 

recognizes that information required 

from a third party, such as consumer 

credit data, may be beyond the control 

of the applicant. The proposed rule 

would allow third parties to deliver 

information to an Enterprise within a 

reasonable time period that may extend 

beyond the 120-day solicitation period. 

2. Application Fees and Assessment for 

Costs 

The proposed rule would require each 

applicant to be responsible for the costs 

associated with validating and 

approving its credit score model. It is 

typical for the Enterprises to assess a fee 

for reviewing and approving 

counterparties and/or vendors seeking a 

business relationship with them. 

Therefore, the proposed rule would 

permit an Enterprise to require each 

applicant to pay an application fee 

established by the Enterprise to cover 

reasonable costs, including expenses 

incurred as part of the application 

review process. The proposed rule also 

would permit an Enterprise to assess 

applicants for the costs associated with 

acquiring third party data and credit 

scores, either in addition to or instead 

of an up-front application fee. 

3. Fair Lending Compliance and 

Certification 

The proposed rule would require each 

applicant to provide a certification that 

addresses compliance with federal fair 

lending requirements. The certification 

would address protected classifications 

under the Equal Credit Opportunity Act 

(ECOA), the Fair Housing Act, and the 

Safety and Soundness Act.14 Because an 

Enterprise would not necessarily have 

access to the factors used in the 

development of the credit score model 

or used by the credit score model to 

produce credit scores, the fair lending 

certification would provide assurances 

that the credit score model is not based 

on any protected classifications. The 

certification would be required to state 

that no characteristic that is based 

directly on or is highly correlated with 

such a protected classification was used 

in the development of the credit score 

model or is used by the credit score 

model to produce credit scores. 

The proposed rule also would require 

each applicant to address compliance of 

the credit score model and credit scores 

produced by it with federal fair lending 

requirements, including information on 

any fair lending testing and evaluation 

of the model. Statements about 

compliance with consumer regulatory 

standards that do not relate to the 

model’s compliance with federal fair 

lending requirements related to 

protected classifications would be 

insufficient to satisfy this requirement. 

For example, statements about the 

ability to satisfy standards relating to 

generating reasons for adverse action or 

satisfying the standard for an 

empirically derived, demonstrably and 

statistically sound credit scoring system 

would not be sufficient.15

4. Demonstrated Use 

In addition to the fair lending 

certification, the proposed rule would 

require the application to demonstrate 

use of the credit score by creditors to 

make credit decisions. This requirement 

would ensure that the credit score 

model is employed by creditors. To 

demonstrate use, the application could 

include testimonials by non-mortgage 

and/or mortgage lenders or bank 

validation reports that show the 

applicant’s credit scores were used in 

underwriting credit. 

While FHFA generally believes that 

the Enterprises should not validate and 

approve credit scores that have not been 

used by a creditor in some capacity, 

FHFA recognizes that limiting 

applications to those credit score 

models that have been used to make 

credit decisions may impede innovation 

and potential market acceptance of new 

credit score models. In other words, it 

may be difficult for credit score model 

developers to demonstrate the viability 

of their credit scores to creditors 

without entities like the Enterprises 

engaging them in ‘‘test and learn’’ pilots. 

The provisions related to pilot programs 

are discussed in more detail below. 

5. Conflicts of Interest Certification and 

Qualification of Credit Score Model 

Developer 

The last application criterion in the 

proposed rule involves the credit score 

model developer’s qualifications. To 

implement the conflicts of interest 

prohibition discussed above, FHFA is 

proposing to require each applicant to 

certify that no owner of consumer data 

necessary to construct or test the credit 

score model is related to the credit score 

model developer through any degree of 

common ownership or control. In 

addition, the proposed rule would 

require the application to demonstrate 

the credit score model developer’s 

experience and financial capacity. This 

would include a detailed description of 

the developer’s corporate and 

governance structure, including any 

common ownership or control with an 

entity that owns, prices, and provides 

access to consumer data. An application 

also would be required to provide 

information about the past financial 

performance of the credit score model 

developer, including audited financial 

statements for the preceding three years. 

This information provided by the 

applicant would allow an Enterprise to 

evaluate the experience and financial 

capacity of the credit score model 

developer as well as the basis for the 

conflicts of interest certification. 

As a general prudential standard, each 

Enterprise is required to manage its 

counterparty and vendor risk.16 In this 

context, if an Enterprise chooses to 

require provision of a borrower’s credit 

score as a condition of purchasing a 

mortgage, the Enterprise must be 

reasonably assured that the type of 

credit score it specifies will be available 

within the market, and thus that the 

credit score model developer is, and 

will remain, financially viable. To 

understand the credit score model 

developer as a potential counterparty, 

the proposed rule would require each 

application to address the applicantdeveloper’s corporate structure, 

governance structure, and financial 

performance, including audited 

financial statements for the three full 

years preceding the year of application. 

An Enterprise may require an applicant 

to certify that there has been no material 

change to information submitted on the 

developer’s qualifications prior to 

approving a credit score model. 

6. Additional Enterprise Standards and 

Criteria 

The proposed rule would permit the 

Enterprises to establish additional 


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17Section 310 requires an Enterprise to establish 

a process pursuant to which an Enterprise will not 

validate and approve a credit score model that does 

not ‘‘satisf[y] minimum requirements of integrity, 

reliability, and accuracy.’’ 12 U.S.C. 1454(d)(3)(A) 

and 1717(b)(7)(C)(i). Elsewhere, section 310 states 

that the credit score model must ‘‘compl[y] with 

any standards and criteria established by’’ FHFA. 

Id., 1454(d)(3)(D) and 1717(b)(7)(C)(iv). 

requirements for the application. The 

Enterprise would be required to include 

any additional requirements in its 

Credit Score Solicitation, and those 

requirements would be subject to FHFA 

review and approval as discussed above. 

7. Data Acquisition 

The proposed rule would permit an 

Enterprise to acquire any data that it 

may require to conduct the Credit Score 

Assessment. Such data would typically 

include historical credit scores on a test 

set of existing Enterprise loans at 

origination. For example, in the 2015 

assessment conducted by FHFA and the 

Enterprises, the Enterprises each 

purchased Classic FICO, VantageScore 

3.0, and FICO 9 scores from one of the 

nationwide CRAs. Each application 

must include a reasonable process for 

the Enterprise to acquire the applicant 

credit score and data on existing loans 

and future loans. Applicants whose 

credit scores incorporate multiple 

sources of consumer credit information 

(e.g., credit scores based on information 

from the nationwide CRAs yet 

augmented with data outside of the 

three nationwide CRAs) will need to 

work with the Enterprises on a process 

to acquire the applicant’s credit scores 

on existing Enterprise loans. 

8. Timing and Notices 

The proposed rule would require an 

Enterprise to provide certain notices to 

an applicant, including an application 

status notice and a notice of whether an 

applicant’s application is complete. The 

notices are intended to keep the 

applicant informed about the status of 

its application and provide an 

opportunity to identify and address 

questions or deficiencies. Section 310 

requires that an Enterprise provide an 

applicant with a status notice no later 

than 60 days from the date the 

application is submitted to an 

Enterprise. The proposed rule would 

require an Enterprise to include any 

information about the application, 

specifically if there is any missing or 

additional required information. The 

Credit Score Assessment and the 

Business Assessment of the validation 

and approval process also require 

notifications to the applicant. FHFA is 

seeking comment on the number of 

notifications, and whether the proposed 

notifications are the appropriate 

notifications for the applicant to be kept 

abreast of its application throughout the 

validation and approval process. 

Once an Enterprise makes a 

determination of completeness of an 

application, the proposed rule would 

require an Enterprise to notify the 

applicant that its application is 

complete. As noted earlier, applications 

would be considered complete once an 

Enterprise has all the information 

needed to begin the Credit Score 

Assessment, including any information 

from the applicant as well as any data 

that may be obtained from a third party. 

D. Credit Score Assessment 

1. Overview 

The proposed rule would require 

Fannie Mae and Freddie Mac to 

undertake a Credit Score Assessment of 

each credit score model for which it has 

received a complete application. The 

Credit Score Assessment would include 

an evaluation of the accuracy and 

reliability of credit scores on a standalone basis (outside of an Enterprise’s 

internal systems and procedures), along 

with an assessment of the integrity of 

the scores produced by the model. The 

tests for accuracy and reliability of 

credit scores within an Enterprise’s 

internal systems and procedures would 

be considered after the Credit Score 

Assessment phase, as part of an 

Enterprise Business Assessment. 

The proposed rule would permit an 

Enterprise to conduct its own testing for 

the Credit Score Assessment or to 

contract with a third party to test each 

credit score model. Because the Credit 

Score Assessment considers accuracy 

and reliability of the credit score outside 

of the Enterprise systems, FHFA 

requests comment on whether the Credit 

Score Assessment could be conducted 

jointly by the Enterprises for each 

application. If so, an applicant could 

submit an application to each 

Enterprise, but the Enterprises would 

work together to conduct a single Credit 

Score Assessment for each application. 

The proposed rule would establish 

standards for accuracy, reliability and 

integrity and would require that an 

application pass the Credit Score 

Assessment in order to be considered in 

the next phase of the process (Enterprise 

Business Assessment).17 A credit score 

model that does not pass the Credit 

Score Assessment would not be eligible 

to be approved by an Enterprise under 

the Enterprise Business Assessment. 

2. Standards or Criteria for Accuracy 

A credit score model is accurate if it 

produces credit scores that 

appropriately reflect a borrower’s 

propensity to repay a mortgage loan in 

accordance with its terms. This permits 

a credit score user to correctly rank 

order the risk that the borrower will not 

repay the obligation in accordance with 

its terms relative to other borrowers. 

FHFA has considered several options 

for assessing the accuracy test results. 

Under each of the options being 

considered by FHFA, which are 

discussed further below, the Enterprises 

would conduct substantially the same 

statistical tests for credit score accuracy 

yet the outcome of the accuracy testing 

would be determined by the assessment 

option. This section first describes the 

statistical tests that would be conducted 

and then describes each of the four 

options under consideration. 

a. Testing for Accuracy 

Conceptually, statistical tests of credit 

score accuracy measure the separation 

between the credit score distribution of 

the defaulted loans with the credit score 

distribution of the non-defaulted loans. 

The Kolmogorov-Smirnov statistic (K– 

S), divergence, and Gini coefficient are 

common statistical measures used to 

measure the ability of a credit score 

model to separate defaulted borrowers 

from non-defaulted borrowers. Beyond 

the common set of tests, the Enterprises 

are encouraged to explore additional 

score performance measures and 

statistical tests. 

The proposed rule would not define 

specific parameters for the testing that 

would be conducted by an Enterprise. 

The proposed rule would require that 

testing utilize one or more industry 

standard statistical tests for 

demonstrating divergence among 

borrowers’ propensity to repay, applied 

to mortgages purchased by an 

Enterprise. Although the proposed rule 

allows flexibility for the Enterprises to 

define the specific parameters of testing, 

FHFA expects that the Enterprise testing 

requirements would include a definition 

of default. 

Critical to accuracy testing of a credit 

score is the definition of default, which 

includes two parts, the occurrence of an 

event (e.g., delinquency) and a time 

horizon (e.g., 24 months since 

origination). Currently, the generally 

accepted definition of default is a 90- 

day delinquency during a two year 

period. FHFA expects that the 

Enterprises will use the generally 

accepted definition of default and FHFA 

is seeking comment, with supporting 

information, on any additional default 

definitions. 

The proposed rule would include a 

requirement that the Enterprise test 

accuracy on subgroups of loans. The 

loan sets obtained for testing would 


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18The Hand and Adam (2014) study is a 

simplified study in contrast to the complicated 

underwriting and purchase process at the 

Enterprises. 

have to contain sufficient observations 

to perform the accuracy tests on 

subgroups. It is unlikely that the 

accuracy of a credit score is constant 

across the entire credit score 

distribution. Subgroup testing could be 

applied to loan to value groups, credit 

score groups, thin credit file loans at 

origination, new credit files, and files 

with a past delinquency. It is expected 

that credit score accuracy will decline 

when applied to thin, stale and new 

credit files, yet credit score models’ 

accuracy is critically important to 

borrowers and investors in these 

challenging cases because the credit 

scores will be in close proximity to 

critical thresholds. 

b. Options for Evaluating Test Results 

FHFA has considered four options for 

evaluating test results: A comparisonbased approach, a champion-challenger 

approach, a benchmark-based approach, 

and a transitional approach. The 

proposed rule language is based on the 

comparison-based approach, but FHFA 

may adopt any of the four approaches in 

the final rule or consider other options 

suggested in the comments. Each of the 

four approaches is discussed in more 

detail below. 

Each of the four options under 

consideration would include a 

minimum standard that a credit score 

model must meet, in that ‘‘it produces 

a credit score that appropriately reflects 

a borrower’s propensity to repay a 

mortgage loan in accordance with its 

terms, permitting a credit score user to 

rank order the risk that the borrower 

will not repay the obligation in 

accordance with its terms relative to 

other borrowers.’’ The standard is 

measured by statistical testing. 

However, the four options reflect 

different approaches for comparing the 

statistical results from the credit score 

models being evaluated to each other. 

FHFA is considering four options for 

evaluating test results in part to address 

potential concerns about the continued 

use of Classic FICO. Section 310 

requires an Enterprise to use a validated 

and approved score at a defined point 

in the future. One way to ensure that a 

validated and approved score is 

available before that defined point 

would be to approve Classic FICO. This 

would not require any additional time 

to implement because Classic FICO is 

already in use. Continuing to use Classic 

FICO could be beneficial to the 

Enterprises and other market 

participants in smoothing the transition 

away from using a credit score from a 

model that has not been validated and 

approved to an environment in which 

an Enterprise must only use credit 

scores from models that have been 

validated and approved. 

i. Comparison-Based Approach 

The first option under consideration 

is a comparison-based approach. This is 

the option reflected in the proposed rule 

text. Under this approach, an Enterprise 

would test the credit scores under 

consideration for accuracy and would 

be required to evaluate whether the new 

model produced credit scores that are 

more accurate than any credit score the 

Enterprise is then using. While an 

Enterprise would be required to assess 

accuracy on a comparative basis, the 

proposed rule would not establish a 

bright-line test for minimum accuracy 

that a credit score model would have to 

meet to pass the Credit Score 

Assessment. 

The comparison-based approach 

would allow flexibility for an Enterprise 

to make any determination based on the 

results of the comparison. For example, 

an Enterprise could determine that a 

particular credit score model did not 

meet the Credit Score Assessment based 

on the comparison if the credit score 

model performed substantially worse 

than other credit score models in 

measuring accuracy. An Enterprise 

would be permitted to determine that a 

credit score model met the accuracy 

standard if it performed substantially as 

well as other credit score models being 

tested. Because the comparison-based 

approach would not include a brightline test for minimum accuracy, an 

Enterprise would be permitted to make 

a determination on this aspect of the 

Credit Score Assessment even if there 

were no relevant comparison available 

for the credit score model being tested. 

In that case, the accuracy standard 

would be successful rank-ordering of 

borrowers, as stated in proposed 

§ 1254.7(b)(1). 

The flexibility of a comparison-based 

approach without a bright-line test 

could raise certain challenges. Among 

these are concerns that the accuracy 

standard itself would not inform the 

public and applicants as to how an 

Enterprise would make its 

determination of accuracy. These 

transparency concerns would be 

mitigated by the proposed requirement 

that an Enterprise provide an 

explanation of the reasons for 

disapproval of an application to the 

applicant. Even so, a requirement that 

an Enterprise explain after making its 

decision how it considered and applied 

the accuracy standard would not inform 

the public or prospective applicants 

about how the Enterprise would 

consider and apply criteria in future 

decisions. 

ii. Champion-Challenger Approach 

As another possible standard, the 

second option under consideration is a 

champion-challenger approach that 

would require that the applicant’s credit 

score(s) be more accurate than the 

existing credit score in use at the 

Enterprises, as demonstrated by 

appropriate testing. Score accuracy 

directly benefits borrowers and 

investors since an Enterprise relies on 

credit risk measures generated from its 

AUS. Accepting a less accurate credit 

score model would negatively impact 

borrowers and investors. 

Newer credit score models should 

statistically outperform legacy credit 

score models for several reasons. First, 

newer credit score models incorporate 

borrower information that was not 

available when the legacy credit score 

models were designed and estimated. 

Second, newer credit score models are 

estimated (or ‘‘trained’’) on more recent 

borrower credit histories. More recent 

historical borrower behaviors better 

represent current borrower behaviors 

than older credit histories. In addition, 

overlap between the estimation (or 

‘‘training’’) data and the accuracy testing 

data should benefit the credit score 

model with the greatest time period 

overlap. Lastly, when comparing 

accuracy tests on old and new credit 

scores with loans that were originated 

with the old credit score, studies, such 

as Hand and Adams (2014), show that 

a component of the newer credit score’s 

improved accuracy is an artifact of the 

biased testing sample.18 Although the 

amount of bias may be small, the bias 

makes the new credit score appear more 

accurate than the old credit score. 

Therefore a new score is not as accurate 

as the old score if the new score tests 

only as accurate as the old score. With 

expectations that the accuracy results 

for newer credit score models prove 

stronger than those for the older credit 

score model, the standard that a new 

credit score be more accurate than the 

existing credit score could be a 

reasonable minimum standard. 

One drawback to requiring as the 

standard for accuracy that the new score 

perform better than the old score is that 

it does not provide a standard for 

assessing the accuracy of the old score. 

Thus, this standard could effectively 

prevent an Enterprise from continuing 

to use an ‘‘old’’ score. For example, 

adoption and application of a ‘‘must 

perform better than’’ comparative 

standard could result in the Enterprises 


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not validating and approving Classic 

FICO. This could have negative 

consequences. For example, an 

Enterprise may determine Classic FICO 

to be sufficient to meet the business 

needs of the Enterprise, such that costs 

and disruptions of changing to a new 

score are not justified. The championchallenger approach could prevent the 

Enterprise from continuing to use 

Classic FICO in that situation. 

To address concerns of a ‘‘more 

accurate than’’ comparative standard, 

FHFA has considered establishing a 

standard that any new score must 

perform ‘‘as well as’’ the old score to 

pass the Credit Score Assessment. Based 

on the bias described above, however, 

FHFA has concerns that such a standard 

may not be appropriate. 

iii. Benchmark-Based Approach 

To avoid the concerns of either the 

comparison-based approach or the 

champion-challenger approach, FHFA is 

also considering a third option, which 

would establish an absolute statistical 

standard and would require all scores to 

meet a benchmark. FHFA could either 

adopt the benchmark level as part of 

this rulemaking or FHFA could 

determine the benchmark level and 

publish it through an order issued in 

conjunction with any notice to an 

Enterprise at the time of opening a 

solicitation period. Based on credit 

score model testing undertaken for the 

Conservatorship Scorecard project, 

FHFA believes an appropriate statistical 

standard would be to define a test 

statistic (K–S, Gini, or equivalent) as the 

threshold. All complete applications 

would be tested for accuracy and the 

results compared to the threshold test 

statistic. FHFA also recognizes that 

other statistical measures could be 

supported, and for that reason 

considered whether a K–S range would 

be another option for measuring 

accuracy. In this case, however, 

establishing a range would present the 

same issues as selecting a single 

threshold because the lowest end of the 

range would operate as the binding 

accuracy measure. 

This approach would permit all 

scores under consideration, and any 

score then in use, to be measured 

against the same benchmark. Both a 

score then in use and any new score 

being considered could pass or fail the 

benchmark. Defining a specific 

regulatory benchmark could present 

other issues, however. For example, if a 

specific benchmark is known in 

advance, applicants or testers could 

engineer scores or testing methods to 

meet it. In addition, requiring that a 

score meet a regulatory benchmark may 

excessively value that consideration 

(i.e., accuracy) among other 

considerations for which there are not 

regulatory benchmarks. 

iv. Transitional Approach 

FHFA is also considering a 

transitional approach, whereby one 

standard for accuracy would be applied 

for purposes of the first Credit Score 

Assessment undertaken by an 

Enterprise, and another standard 

applied for subsequent Assessments in 

response to a future solicitation. This 

approach would apply the same 

standard to all applications received in 

response to the initial solicitation in 

addition to the existing credit score 

model currently in use. This could 

permit an Enterprise to validate and 

approve Classic FICO pending a 

determination on any other applications 

received by the Enterprise. This may be 

necessary to meet statutory timeframes 

for an Enterprise to be using a validated 

and approved credit score model. 

Under this approach, FHFA would 

permit an Enterprise to validate and 

approve the score currently in use while 

continuing to consider whether to 

validate and approve other scores for 

which it received applications in 

response to the same Credit Score 

Solicitation. If, shortly after validating 

and approving the score currently in 

use, an Enterprise validated and 

approved another score, section 310 

would permit the Enterprise to replace 

the first validated and approved score 

with any other validated and approved 

score. 

If a transitional approach is adopted, 

FHFA is considering a method for 

determining accuracy for the initial 

Credit Score Assessment that could be 

applied to all ‘‘new’’ credit scores and 

the credit score currently in use (Classic 

FICO). Because of issues that arise with 

a champion-challenger approach as 

applied to a score currently in use, 

FHFA anticipates that the transitional 

approach would entail either a 

benchmark-based approach (meaning, 

selection of a statistical benchmark that 

all scores, including the ‘‘old’’ score, 

must meet in order to pass the Credit 

Score Assessment) or a comparisonbased approach. Further, if a 

transitional approach were adopted, 

FHFA would establish a standard for 

determining accuracy for subsequent 

Credit Score Solicitations in the same 

rulemaking. That standard could be any 

that is discussed above (i.e., a 

comparison-based approach, championchallenger approach, or a benchmarkbased approach) or could be a different 

approach, taking into consideration 

comments received. 

v. Request for Comment on Specific 

Options 

As discussed above, FHFA sees value 

in and has concerns with each approach 

described. FHFA may adopt any of these 

options in the final rule or may revise 

any of the options after considering 

public comments. 

If FHFA adopts a comparison-based 

approach, the final rule would include 

a requirement that an Enterprise 

evaluate accuracy based on a 

comparison of each credit score model 

to any other credit score model under 

consideration, including the model that 

produces the score currently in use by 

an Enterprise. This approach for 

assessing the accuracy of a new score is 

reflected in the proposed rule text set 

forth below. The comparison-based 

approach would not include a brightline test regarding the outcome of the 

comparison. 

If FHFA adopts a championchallenger approach, the final rule 

would include a relative measure under 

which each model under consideration 

would be compared to the others, and 

would include a bright-line test 

regarding the outcome of the 

comparison. 

If FHFA adopts a benchmark-based 

approach, the final rule would include 

a bright-line test that a credit score 

model, or the credit scores produced 

from it, must meet in order to pass the 

Credit Score Assessment. The final rule 

could either include an absolute 

statistical cutoff to which each model’s 

accuracy test would be compared, or 

provide that the specific statistical 

cutoff would be established by FHFA 

order. 

If FHFA adopts a transitional 

approach, the final rule would include 

one measure that a credit score model, 

or the credit scores produced from it, 

must meet in order to pass the initial 

Credit Score Assessment, and a different 

measure that must be met by later 

applicants in response to subsequent 

Credit Score Solicitations. 

FHFA welcomes comment on all 

approaches and all standards described 

above, and in particular on whether 

there is a basis on which one should be 

preferred to others or another. 

3. Reliability Standard 

The proposed rule would establish a 

reliability standard that must be met as 

part of the Credit Score Assessment. 

Under the reliability standard, a credit 

score model is reliable if it produces 

credit scores that maintain accuracy 

through the economic cycle. The 

proposed rule would require that an 

Enterprise evaluate whether a new 


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credit score model produces credit 

scores that are at least as reliable as the 

credit scores produced by a credit score 

model that the Enterprise is then using, 

as demonstrated by appropriate testing. 

Delinquency rates increase and decrease 

over the economic cycle; however, the 

rank ordering ability of the credit score 

should remain over the cycle. 

The proposed rule would require that 

the Enterprises test at least two sets of 

Enterprise loans to evaluate credit score 

reliability. The first group of loans 

would represent recently underwritten 

loans with sufficient performance 

history consistent with the definition of 

default. The second set of loans would 

be selected from a period earlier than 

the estimation data used to develop the 

new credit scores and at a point in the 

economic cycle different from the first 

loan group. The Enterprises would 

define the loan sets conditional on 

origination period (or acquisition 

period) and include all single-family 

loans within the specified periods. 

The proposed rule would ensure that 

new credit score models are not ‘‘overfitted’’ to recent loan quality and 

borrower credit behavior. ‘‘Over-fitting’’ 

is a characterization of a model where 

the model predicts exceptionally well 

on the two years of credit records used 

to estimate the model, yet predicts 

poorly outside of those two years. 

Testing credit score accuracy at a 

minimum of two points in the economic 

cycle should also ensure the credit score 

models retain the ability to rank order 

credit risk over the economic cycle. 

4. Integrity Standard 

The proposed rule would establish a 

standard for integrity that must be met 

as part of the Credit Score Assessment. 

Under the integrity standard, a credit 

score model has integrity if, when 

producing a credit score, it uses relevant 

data observed by the developer that 

reasonably encompasses the borrower’s 

credit history and financial 

performance. To be validated, a credit 

score model applicant would be 

required to demonstrate to the 

Enterprise that the model has integrity, 

based on appropriate evaluations or 

requirements identified by the 

Enterprise (which may address, for 

example, the level of aggregation of data 

or observable data that may not be 

omitted or discounted when 

constructing a credit score). 

The proposed integrity standard 

would be evaluated subjectively, but 

consistently, in the Credit Score 

Assessment. The goal of the standard is 

to ensure that the credit score model 

developer utilized available data 

elements that are relevant and legally 

permissible. Today, the most common 

credit score models are developed on 

consumer credit files owned by the 

nationwide CRAs. In the future, credit 

score model developers may use 

consumer credit information outside of 

the CRAs or the CRAs may expand the 

breadth of consumer credit information 

collected. Improvements in the range of 

consumer information available to 

credit score model developers may 

improve credit score accuracy. The 

proposed integrity standard is designed 

to encourage credit score model 

developers to innovate. 

5. Additional Enterprise Standards and 

Criteria 

The proposed rule would permit the 

Enterprises to establish additional 

requirements for the Credit Score 

Assessment. The Enterprise would be 

required to include any additional 

requirements in its Credit Score 

Solicitation, and those requirements 

would be subject to FHFA review and 

approval as discussed above. 

6. Timing and Notices 

The proposed rule would require an 

Enterprise to provide a notice to each 

applicant that has submitted a complete 

application of when an Enterprise will 

commence the Credit Score Assessment 

phase. For reasons discussed 

previously, an Enterprise would have 

the flexibility to assess applications as 

they are completed or to assess all 

applications once an Enterprise has 

made a determination on complete 

applications submitted during the 

solicitation period. The proposed rule 

would provide that the Credit Score 

Assessment phase could begin no earlier 

than the close of the solicitation time 

period. The proposed rule would 

require the Credit Score Assessment 

period to extend for 180 days. The 

proposed rule would permit the Director 

to authorize not more than two 

extensions of the Credit Score 

Assessment period that shall not exceed 

30 days each, upon a written request 

and showing of good cause by an 

Enterprise in accordance with section 

310. The timeframes for the Credit Score 

Assessment are illustrated in Figure 2. 

The proposed rule would require that 

a Credit Score Assessment 

determination notice be provided to the 

applicant indicating whether the 

applicant’s score meets the criteria of 

the Credit Score Assessment no later 

than 270 days from the beginning of the 

Credit Score Assessment. The proposed 

rule would require that this notification 

be provided no later than 30 days after 

the Enterprise makes a determination. If 

an applicant does not pass the Credit 

Score Assessment, the notice must 

include a description of the reason(s) 

why the applicant did not pass the 

Credit Score Assessment. 


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E. Enterprise Business Assessment 

1. Overview 

The proposed rule would require 

Fannie Mae and Freddie Mac to 

undertake an Enterprise Business 

Assessment of each credit score model 

that the Enterprise determines has met 

the Credit Score Assessment. The 

proposed Enterprise Business 

Assessment would be broader than the 

Credit Score Assessment. The Enterprise 

Business Assessment would include an 

evaluation in at least five areas: (1) An 

assessment of the accuracy and 

reliability of credit scores within the 

Enterprise underwriting and other 

systems; (2) an assessment of possible 

fair lending impacts; (3) an assessment 

of potential impacts on Enterprise 

operations and risk management, and 

impact on industry; (4) an assessment of 

possible competitive effects from using 

a particular credit score model; (5) an 

assessment of the credit score model 

provider as a potential third-party 

vendor; and (6) any other Enterprise 

standards and criteria. The proposed 

rule would allow each Enterprise to 

include, subject to FHFA review and 

approval, any additional assessment 

necessary to make a business case 

decision. The considerations in the 

Enterprise Business Assessment would 

not be new to the Enterprises and are 

generally part of the current course of 

business for the Enterprises. 

In addition to the minimum 

requirements of accuracy, reliability, 

and integrity, section 310 requires that 

a credit score model must be ‘‘consistent 

with the safe and sound operation of the 

[Enterprise]’’ in order for an Enterprise 

to validate and approve the model. 

Several assessment criteria relate to 

Enterprise safety and soundness, and 

the use of a credit score model in the 

Enterprise systems. Because the 

Enterprises operate different systems, 

different business models, and different 

credit tolerances, the Enterprise 

Business Assessment would allow each 

Enterprise to assess credit scores based 

on its specific business needs. 

2. Assessment of Credit Scores With 

Enterprise Proprietary Systems 

The proposed rule would require an 

Enterprise to include an assessment of 

the accuracy and reliability of the credit 

score when used within its systems that 

use credit scores. An Enterprise 

Business Assessment would not 

consider a credit score’s integrity, 

because the integrity of a score would be 

established in the Credit Score 

Assessment phase and would not 

change by use in an Enterprise’s 

systems. 

The assessment of accuracy and 

reliability would include statistical 

testing that would be similar to the tests 

used in the Credit Score Assessment. 

However, instead of testing the 

performance of a credit score model 

independent of Enterprise systems 

based on its ability to rank-order 

applicants, an Enterprise Business 

Assessment would consider the 

performance of a credit score model 

when used in the Enterprise systems 

that use credit scores, for example as a 

purchase threshold or as an input to the 

Enterprise’s underwriting systems. 

3. Fair Lending Assessment 

The proposed rule would require each 

Enterprise to evaluate the fair lending 

risk and the fair lending impact of the 

credit score model in accordance with 

standards and requirements related to 

the Equal Credit Opportunity Act (15 

U.S.C. 1691(a)(1)), the Fair Housing Act 

(42 U.S.C. 3605(a)), and the Safety and 

Soundness Act (12 U.S.C. 4545(1)) 

(including identification of potential 

impact, comparison of the new credit 

score model with any credit score model 

currently in use, and consideration of 

potential methods of using the new 

credit score model) as part of the 

Enterprise Business Assessment. The 

Enterprises currently conduct fair 

lending analyses when making credit 

policy changes. FHFA requests 

comment on whether the fair lending 

assessment should go beyond traditional 

fair lending risk and compliance testing 

to consider, in addition, whether the 

credit score model has the potential to 

promote access to mortgage credit for 

creditworthy applicants across all 

protected classifications. FHFA requests 

comment on how any such additional 

analysis under the Enterprise Business 

Assessment should be defined or 

conducted. 

4. Assessment of Impact on Enterprise 

Operations and Risk Management, and 

Impact on Industry 

The proposed rule would require the 

Enterprise Business Assessment to 

consider operational impacts to the 

Enterprises, such as implementation 

timing, and potential impacts on 

Enterprise risk management. The 

Enterprise Business Assessment also 

would consider potential impacts across 

the entire mortgage industry of an 

updated credit score model or models. 

In response to the RFI, many market 

participants indicated that updating to 

the newest version of FICO would be 

less operationally complex than 

updating systems to handle multiple 

models. Respondents were concerned 

about impacts to liquidity in the 

secondary markets if the Enterprises 

permitted lenders to submit either credit 

score. Maintaining a single score 

requirement yet updating the credit 

score would initiate a series of changes 

and adoption costs throughout the 

mortgage industry. Lenders would have 

to update loan-pricing models and any 

lender overlays, while mortgage insurers 

would have to update and submit their 

premium rate sheets to state insurance 

regulators for approval. Mortgage 

Backed Securities (MBS) and Credit 

Risk Transfer (CRT) investors would 

have to re-estimate mortgage 

performance and valuation models. In 

light of these responses to the RFI, the 

proposed rule would require an 

Enterprise to consider impacts of a new 

credit score model or models and the 

impacts that updating may have on the 

entire mortgage finance industry. 

The proposed rule also would require 

the Enterprise Business Assessment to 

include consideration of potential 

impacts on eligibility criteria and 

Enterprise pricing for loan purchases as 

part of any assessment. The Enterprise 

Business Assessment also would require 

each Enterprise to evaluate other 

possible impacts of a new credit score 

model. For example, the Enterprises 

currently use credit score thresholds as 

eligibility criteria for certain loan 

purchases. Similarly, the Enterprises 

currently establish loan delivery fees for 

loans based on the original credit score 

and LTV ratio. Switching to a new 

credit score model could require an 

Enterprise to adjust its eligibility criteria 

and loan pricing such that credit risk on 

new business is unchanged. Changing a 

credit score model could require 

updating credit score thresholds in 

order to maintain Enterprise credit risk 

tolerances. 

The proposed rule would address 

these business considerations in terms 

of the impact, benefits, and costs of 

adopting or changing a credit score 

model on market participants, market 

liquidity, and the cost and availability 

of credit. FHFA believes these are 

important considerations, as the cost 

and other impacts of changing a credit 

score model could be significant. 

Likewise, FHFA recognizes that it may 

be difficult to quantify the benefits to 

borrowers in terms of the cost and 

availability of credit. FHFA requests 

comments on these considerations, 

including whether there are impacts, 

costs, or benefits that the Enterprises 

should specifically consider, and 

whether the impacted parties or areas— 

market participants (including 

borrowers, lenders, investors, and the 

Enterprises), market liquidity, and 


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19See 12 CFR part 1236 (Prudential Management 

and Operations Standards); Advisory Bulletin 

2018–08, ‘‘Oversight of Third-Party Provider 

Relationships,’’ Sept. 28, 2018. 

availability of credit—are appropriate or 

should be supplemented. 

5. Competitive Effects 

The Enterprise Business Assessment 

must evaluate whether using the credit 

score model could have an impact on 

competition in the industry. This 

evaluation must consider whether use of 

a particular credit score model could 

have an impact on competition due to 

any ownership or other business 

relationship between the credit score 

model developer and any other 

institution. 

6. Third-Party Vendor Review 

The proposed rule would require the 

Enterprise Business Assessment to 

include a comprehensive vendor review 

for all applicants. FHFA expects an 

Enterprise, as part of its oversight of 

third-party vendors, to maintain a thirdparty vendor risk management program 

that assesses and manages risks 

associated with third-party vendor 

relationships. The Enterprise Business 

Assessment would address any 

financial, operational, compliance, 

legal, and reputational risks associated 

with the third party. The third-party 

vendor review in an Enterprise Business 

Assessment would evaluate the third 

party under any policies, procedures, 

and internal standards of the Enterprise, 

consistent with any Advisory Bulletins 

in effect at the time the Enterprise 

submits its Credit Score Solicitation to 

FHFA for approval. The Enterprise must 

follow its policies and procedures for 

approval and management of vendors 

and other third-party service 

providers.19

7. Enterprise Standards and Criteria 

The proposed rule would permit the 

Enterprises to establish additional 

requirements for the Enterprise Business 

Assessment. The Enterprise would be 

required to include any additional 

requirements in its Credit Score 

Solicitation, and those requirements 

would be subject to FHFA review and 

approval as discussed above. 

8. Timing and Notices 

The proposed rule would require that 

an Enterprise complete the Enterprise 

Business Assessment within 240 days as 

depicted in Figure 3. Section 310 does 

not address a timeframe for industry 

adoption of a new credit score model. 

Based on feedback from the Credit Score 

RFI, which indicated that it will take the 

industry approximately 18–24 months 

to adopt a new credit score model, the 

proposed rule would require an 

Enterprise to provide notice to the 

industry about expected timing of 

changing any credit score model 

requirements. Whether multiple credit 

score models are approved for use may 

impact the implementation timing 

required by an Enterprise. The 

timeframes for the Enterprise Business 

Assessment are illustrated in Figure 3. 

9. Enterprise Business Assessment 

Approval Determination 

The proposed rule would require that 

if an Enterprise made an approval 

determination at the end of the 

Enterprise Business Assessment, the 

Enterprise would have to implement 

each credit score model that it approves 

in its mortgage purchase systems that 

use a credit score. As discussed above, 

the proposed rule does not address how 

approved scores will be implemented 

(e.g., waterfall approach or require all 

approved credit scores for every loan). 

FHFA expects that the Enterprise would 

develop a plan to update their 

requirements of approved score(s) in a 

timely manner taking into account the 

timeframes necessary for any system 

updates and industry concerns on 

adequate time for implementation in an 

orderly fashion. 

F. Enterprise Actions on Applications 

1. Overview 

The proposed rule would require an 

Enterprise to make a determination on 

each application that it determines to be 

complete. An Enterprise could 

determine that an application should be 

approved or disapproved. The proposed 

rule would permit an applicant to 

withdraw its application at any time 

during the validation and approval 

process. 

2. Enterprise Determinations 

The proposed rule would permit an 

Enterprise to approve an application 

after it completes the Enterprise 

Business Assessment. 

The proposed rule would permit an 

Enterprise to disapprove an application 

at any point in the validation and 

approval process. An application could 

be disapproved based on any of the 

criteria identified in the Credit Score 

Solicitation, including any of the 

application requirements (for example, 

if an application did not include a 

required certification) or any of the 

criteria under the Credit Score 

Assessment or the Enterprise Business 

Assessment. If an Enterprise determines 

that an application should be 

disapproved, the proposed rule would 

require an Enterprise to provide the 

applicant with a notice of disapproval 

no later than 30 days after a 

determination is made. If an Enterprise 

disapproves an application, the 

Enterprise would be required to provide 

a description of the reason(s) for 

disapproval, as provided in section 310. 

If an application is approved, the 

Enterprise would be required to make 

its approval determination public. 

3. FHFA Review of Enterprise 

Determination 

The proposed rule would require an 

Enterprise to provide notice to FHFA 


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once an Enterprise has made a decision 

to approve or disapprove an application 

at least 45 calendar days prior to 

notifying the applicant and/or the 

public. This 45-day notice would be 

required for any decision to approve or 

disapprove an application. In all cases, 

the proposed rule would require that 

FHFA be notified prior to an Enterprise 

notifying an applicant or the public of 

its decision. Prior notice to FHFA would 

ensure that FHFA has had an 

opportunity to determine how to handle 

future changes, updates to, or 

replacement of, any credit score 

model(s). Prior notice would permit 

FHFA to take any steps appropriate in 

FHFA’s capacity as conservator or as 

safety and soundness regulator of the 

Enterprises. FHFA’s review of the 

Enterprise determinations would be 

consistent with FHFA’s expectations 

that all Enterprise initiatives be 

conducted in a safe and sound manner. 

4. Withdrawal of Application 

The proposed rule would permit an 

applicant to withdraw its application at 

any time by notifying the Enterprise. 

This would allow an applicant to 

terminate the evaluation process for any 

reason after providing notice to the 

Enterprise. However, because an 

Enterprise may have already devoted 

considerable resources to the evaluation 

of the application, the proposed rule 

would not require the Enterprise to 

return any application fee paid by the 

applicant. In appropriate circumstances, 

an Enterprise may determine that some 

portion of the application fee should be 

refunded to the applicant or used to 

offset the application fee if the applicant 

submits a new application. However, 

any decision to return a portion of an 

application fee or apply it toward a new 

application would be in the sole 

discretion of the Enterprise. 

G. Pilot Programs 

1. Overview 

The proposed rule would allow FHFA 

to approve pilot programs for the use of 

credit scores. Section 310 does not 

address pilot programs explicitly but 

requires that the Enterprises use a 

validated and approved score model in 

all automated underwriting systems that 

use a credit score and in any other 

mortgage purchase procedures and 

systems that use a credit score. It also 

requires that if an Enterprise conditions 

the purchase of mortgages on a credit 

score, the credit score model must be 

validated and approved. In addition, 

section 310 requires that a credit score 

model have a historical record of 

measuring and predicting default rates 

and other credit behaviors. 

One way to gain performance history 

is to allow an Enterprise to collect an 

application from model developers and 

make a business assessment for the use 

of credit score(s) for pilot programs. If 

an applicant’s credit score lacks usage 

by industry to underwrite consumer 

credit, it may be approved initially for 

a pilot program only. 

The proposed rule is seeking feedback 

on whether an Enterprise should 

conduct a pilot with a new credit score 

model, and on how such pilots should 

be addressed under the regulation. For 

example, a pilot may be useful in 

augmenting the Enterprise no-score 

AUS. While both Enterprises have the 

capability to review loans that lack 

credit scores, the addition of a 

‘‘supplemental’’ score could enhance 

the no-score AUS. 

A pilot may also assist an Enterprise 

in determining the appropriate 

standards and criteria for the Credit 

Score Solicitation, including the 

requirements for the application. In 

order to test various standards and 

criteria for the Credit Score Solicitation, 

the pilot or testing initiative would itself 

need to be exempt from the 

requirements of this regulation. 

Any pilot needs to be of limited 

duration and of limited scope. In 

addition, the proposed rule would 

require a pilot to be reviewed and 

approved by FHFA, which may also 

require changes to the program. FHFA is 

seeking comment on all aspects of the 

proposed approach on credit score pilot 

programs. 

V. Paperwork Reduction Act 

The proposed rule would not contain 

any information collection requirement 

that would require the approval of the 

Office of Management and Budget 

(OMB) under the Paperwork Reduction 

Act (44 U.S.C. 3501 et seq.). Therefore, 

FHFA has not submitted any 

information to OMB for review. 

VI. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) requires that a 

regulation that has a significant 

economic impact on a substantial 

number of small entities, small 

businesses, or small organizations must 

include an initial regulatory flexibility 

analysis describing the regulation’s 

impact on small entities. Such an 

analysis need not be undertaken if the 

agency has certified that the regulation 

will not have a significant economic 

impact on a substantial number of small 

entities. 5 U.S.C. 605(b). FHFA has 

considered the impact of the proposed 

rule under the Regulatory Flexibility 

Act. The General Counsel of FHFA 

certifies that the proposed rule, if 

adopted as a final rule, will not have a 

significant economic impact on a 

substantial number of small entities 

because the regulation applies only to 

Fannie Mae and Freddie Mac, which are 

not small entities for purposes of the 

Regulatory Flexibility Act. 

List of Subjects in 12 CFR Part 1254 

Mortgages. 

Authority and Issuance 

For the reasons stated in Preamble, 

under the authority of 12 U.S.C. 4511, 

4513, 4526 and Public Law 115–174, 

section 310, 132 Stat. 1296, FHFA 

proposes to amend subchapter C of 

Chapter XII of Title 12 of the Code of 

Federal Regulations as follows: 

CHAPTER XII—FEDERAL HOUSING 

FINANCE AGENCY 

SUBCHAPTER C—ENTERPRISES 

■ 1. Add part 1254 to subchapter C to 

read as follows: 

PART 1254—VALIDATION AND 

APPROVAL OF CREDIT SCORE 

MODELS 

Sec. 

1254.1 Purpose and Scope. 

1254.2 Definitions. 

1254.3 Computation of time. 

1254.4 Requirements for use of a credit 

score. 

1254.5 Solicitation of applications. 

1254.6 Submission of applications. 

1254.7 Credit Score Assessment. 

1254.8 Enterprise Business Assessment. 

1254.9 Enterprise actions on applications. 

1254.10 Withdrawal of application. 

1254.11 Pilots. 

Authority: 12 U.S.C. 4511, 4513, 4526 and 

Sec. 310, Pub. L. 115–174, 132 Stat. 1296. 

§ 1254.1 Purpose and Scope. 

(a) The purpose of this part is to set 

forth standards and criteria for the 

process an Enterprise must establish to 

validate and approve any credit score 

model that produces any credit score 

that the Enterprise requires in its 

mortgage purchase procedures and 

systems. 

(b) The validation and approval 

process for a credit score model 

includes the following phases: 

Solicitation of applications, submission 

of applications, Credit Score 

Assessment, and Enterprise Business 

Assessment. 

§ 1254.2 Definitions. 

For purposes of this part, the 

following definitions apply. Definitions 

of other terms may be found in 12 CFR 

part 1201, General Definitions Applying 


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to All Federal Housing Finance Agency 

Regulations: 

Credit score means a numerical value 

or a categorization created by a third 

party derived from a statistical tool or 

modeling system used by a person who 

makes or arranges a loan to predict the 

likelihood of certain credit behaviors, 

including default. 

Credit score model means a statistical 

tool or algorithm created by a third 

party used to produce a numerical value 

or categorization to predict the 

likelihood of certain credit behaviors. 

Credit score model developer means 

any person with ownership rights in the 

intellectual property of a credit score 

model. 

Days means calendar days. 

Mortgage means a residential 

mortgage as that term is defined at 12 

U.S.C. 1451(h). 

Nationwide consumer reporting 

agency means a consumer reporting 

agency that compiles and maintains 

files on consumers on a nationwide 

basis as defined in section 603 of the 

Fair Credit Reporting Act (15 U.S.C. 

1681a). 

Person means an individual, sole 

proprietor, partnership, corporation, 

unincorporated association, trust, joint 

venture, pool, syndicate, organization, 

or other legal entity. 

§ 1254.3 Computation of time. 

For purposes of this part, each time 

period begins on the day after the 

relevant event occurs (e.g. the day after 

a submission is made) and continues 

through the last day of the relevant 

period. When the last day is a Saturday, 

Sunday or federal holiday, the period 

runs until the end of the next business 

day. 

§ 1254.4 Requirements for use of a credit 

score. 

(a) Enterprise use of a credit score. An 

Enterprise is not required to use a credit 

score for any business purpose. 

However, if an Enterprise conditions its 

purchase of a mortgage on the provision 

of a credit score for the borrower, the 

Enterprise must: 

(1) Require that the credit score be 

derived from a credit score model that 

has been approved by the Enterprise in 

accordance with this part; and 

(2) Provide for the use of the credit 

score by any automated underwriting 

system that uses a credit score and any 

other procedures and systems used by 

the Enterprise that use a credit score for 

mortgage purchases. 

(b) Replacement of credit score model. 

An Enterprise may at its discretion 

continue to use or replace any credit 

score model then in use after a new 

credit score model has been approved in 

accordance with this part. 

(c) No right to continuing use. 

Enterprise use of a particular credit 

score model does not create any right to 

or expectation of continuing, future, or 

permanent use of that credit score 

model by an Enterprise. 

§ 1254.5 Solicitation of applications. 

(a) Required solicitations. FHFA 

periodically will require the Enterprises 

to solicit applications from credit score 

model developers. FHFA will require 

solicitation to occur at least every seven 

(7) years, unless FHFA determines that 

a solicitation should occur more or less 

frequently. FHFA will establish the 

solicitation requirement by notice to the 

Enterprises, which will include: 

(1) A requirement to submit a Credit 

Score Solicitation to FHFA for review; 

(2) A deadline for submission of the 

Credit Score Solicitation; and 

(3) A timeframe for the solicitation 

period. 

(b) Credit Score Solicitation. In 

connection with each required 

solicitation, an Enterprise must submit 

to FHFA a Credit Score Solicitation 

including: 

(1) The opening and closing dates of 

the solicitation time period during 

which the Enterprise will accept 

applications from credit score model 

developers; 

(2) A description of the information 

that must be submitted with an 

application; 

(3) A description of the process by 

which the Enterprise will obtain data for 

the assessment of the credit score 

model; 

(4) A description of the process for the 

Credit Score Assessment and the 

Enterprise Business Assessment; and 

(5) Any other requirements as 

determined by an Enterprise. 

(c) Review by FHFA. Within 45 days 

of an Enterprise submission of its Credit 

Score Solicitation to FHFA, FHFA will 

either approve or disapprove the 

Enterprise’s Credit Score Solicitation. 

FHFA may extend the time period for its 

review as needed. FHFA may impose 

such terms, conditions, or limitations on 

the approval of a Credit Score 

Solicitation as FHFA determines to be 

appropriate. 

(d) Publication. Upon approval by 

FHFA, the Enterprise must publish the 

Credit Score Solicitation on its website 

for at least 90 days prior to the start of 

the solicitation time period. 

(e) Initial solicitation. Each Enterprise 

must submit its initial Credit Score 

Solicitation to FHFA within 60 days of 

the effective date of this regulation. The 

initial solicitation time period will 

begin on a date determined by FHFA 

and will extend for 120 days. 

§ 1254.6 Submission of applications. 

(a) Application requirements. Each 

application submitted in response to a 

Credit Score Solicitation must meet the 

requirements set forth in the Credit 

Score Solicitation to which it responds. 

Each application must include the 

following elements, and any additional 

requirements that may be set forth in the 

Credit Score Solicitation: 

(1) Application fee. Each application 

must include an application fee 

established by the Enterprise. An 

Enterprise may address conditions for 

refunding a portion of a fee in the Credit 

Score Solicitation. The application fee is 

intended to cover the direct costs to the 

Enterprise of conducting the Credit 

Score Assessment. 

(2) Fair lending compliance and 

certification. Each application must 

address compliance of the credit score 

model and credit scores produced by it 

with federal fair lending requirements, 

including information on any fair 

lending testing and evaluation of the 

model conducted. Each application 

must include a certification that no 

characteristic that is based directly on or 

is highly correlated solely with a 

classification prohibited under the 

Equal Credit Opportunity Act (15 U.S.C. 

1691(a)(1)), the Fair Housing Act (42 

U.S.C. 3605(a)), or the Safety and 

Soundness Act (12 U.S.C. 4545(1)) was 

used in the development of the credit 

score model or is used as a factor in the 

credit score model to produce credit 

scores. 

(3) Use of model by industry. Each 

application must demonstrate use of the 

credit score by creditors to make a 

decision whether to extend credit to a 

prospective borrower. An Enterprise 

may address criteria for such 

demonstration in the Credit Score 

Solicitation. An Enterprise may permit 

such demonstration of use to include 

submission of testimonials by creditors 

(mortgage or nonmortgage) who use the 

applicant’s score when making a 

determination to approve the extension 

of credit. 

(4) Conflict of interest certification 

and qualification of credit score model 

developer. Each application must 

include a certification that no owner of 

consumer data necessary to construct 

the credit score model is related to the 

credit score model developer through 

any degree of common ownership or 

control. Each application must also 

include any information that an 

Enterprise may require to evaluate the 

credit score model developer (i.e., 

relevant experience and financial 


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capacity). Such information must 

include a detailed description of the 

credit score model developer’s: 

(i) Corporate structure, including any 

business relationship to any other 

person through any degree of common 

ownership or control; 

(ii) Governance structure; and 

(iii) Past financial performance, 

including audited financial statements 

for the preceding three years. 

(5) Other requirements. Each 

application must include any other 

information an Enterprise may require. 

(b) Historical consumer credit data. 

An Enterprise may obtain any historical 

consumer credit data necessary for the 

Enterprise to test a credit score model’s 

historical record of measuring and 

predicting default rates and other credit 

behaviors. An Enterprise may assess the 

applicant for any costs associated with 

obtaining or receiving such data unless 

such costs were included in the up-front 

application fee. 

(c) Acceptance of applications. Each 

application submitted in response to a 

Credit Score Solicitation within the 

solicitation time period must be 

reviewed for acceptance by the 

Enterprise. 

(1) Notice of status. Within 60 days of 

an applicant’s submission, the 

Enterprise must provide an applicant 

with an Application Status Notice, 

which will indicate whether the 

application requires additional 

information to be provided by the 

applicant. An applicant may submit 

additional information through the end 

of the solicitation period. 

(2) Complete application. 

Completeness of an application will be 

determined by the Enterprise. An 

application is complete when an 

Enterprise determines that required 

information has been received by the 

Enterprise from the applicant and from 

any third party. Information from a third 

party for a specific application may be 

received by the Enterprise after the 

solicitation period closes. The 

Enterprise must notify the applicant 

upon determining that the application is 

complete with a Complete Application 

Notice. 

§ 1254.7 Credit Score Assessment. 

(a) Requirement for Credit Score 

Assessment. An Enterprise will 

undertake a Credit Score Assessment of 

each application that the Enterprise 

determines to be complete. An 

Enterprise must determine whether an 

application passes the Credit Score 

Assessment. 

(b) Criteria for Credit Score 

Assessment. The Credit Score 

Assessment is based on the following 

criteria: 

(1) Testing for accuracy. A credit 

score model is accurate if it produces a 

credit score that appropriately reflects a 

borrower’s propensity to repay a 

mortgage loan in accordance with its 

terms, permitting a credit score user to 

rank order the risk that the borrower 

will not repay the obligation in 

accordance with its terms relative to 

other borrowers. The Credit Score 

Assessment must evaluate whether a 

new credit score model produces credit 

scores that are more accurate than the 

credit scores produced by any credit 

score model that the Enterprise is then 

using, as demonstrated by appropriate 

testing. Testing is appropriate if it 

utilizes one or more industry standard 

statistical tests for demonstrating 

divergence among borrowers’ 

propensity to repay, applied to 

mortgages purchased by an Enterprise 

(including subgroups), as identified by 

the Enterprise. 

(2) Testing for reliability. A credit 

score model is reliable if it produces 

credit scores that maintain accuracy 

through the economic cycle. The Credit 

Score Assessment must evaluate 

whether a new credit score model 

produces credit scores that are at least 

as reliable as the credit scores produced 

by any credit score model that the 

Enterprise is then using, as 

demonstrated by appropriate testing. 

Testing is appropriate if it utilizes one 

or more industry standard statistical 

tests for demonstrating accuracy using 

the industry standard definition of 

default, and demonstrates accuracy at a 

minimum of two points in the economic 

cycle when applied to mortgages 

purchased by an Enterprise (including 

subgroups), as identified by the 

Enterprise. 

(3) Testing for integrity. A credit score 

model has integrity if, when producing 

a credit score, it uses relevant data that 

reasonably encompasses the borrower’s 

credit history and financial 

performance. The Credit Score 

Assessment must evaluate whether a 

credit score model applicant has 

demonstrated that the model has 

integrity, based on appropriate testing or 

requirements identified by the 

Enterprise (which may address, for 

example, the level of aggregation of data 

or whether observable data has been 

omitted or discounted when producing 

a credit score). 

(4) Other requirements. An Enterprise 

may establish requirements for the 

Credit Score Assessment in addition to 

the criteria established by FHFA. 

(c) Third-party testing. Testing 

required for the Credit Score 

Assessment may be conducted by: 

(1) An Enterprise; or 

(2) An independent third party 

selected or approved by an Enterprise. 

(d) Timing of Credit Score 

Assessment. (1) An Enterprise must 

notify the applicant when the Enterprise 

begins the Credit Score Assessment. The 

Credit Score Assessment will begin no 

earlier than the close of the solicitation 

time period and will extend for 180 

days. FHFA may authorize not more 

than two extensions of time for the 

Credit Score Assessment, which shall 

not exceed 30 days each, upon a written 

request and showing of good cause by 

the Enterprise. 

(2) The Enterprise must provide 

notice to the applicant within 30 days 

of the determination of whether the 

application has passed the Credit Score 

Assessment. 

§ 1254.8 Enterprise Business Assessment. 

(a) Requirement for Enterprise 

Business Assessment. An Enterprise 

will undertake an Enterprise Business 

Assessment of each application that the 

Enterprise determines to have passed 

the Credit Score Assessment. An 

Enterprise must determine whether an 

application passes the Enterprise 

Business Assessment. 

(b) Criteria for Enterprise Business 

Assessment. The Enterprise Business 

Assessment is based on the following 

criteria: 

(1) Accuracy; reliability. The 

Enterprise Business Assessment must 

evaluate whether a new credit score 

model produces credit scores that are 

more accurate than and at least as 

reliable as credit scores produced by 

any credit score model currently in use 

by the Enterprise. This evaluation must 

consider credit scores as used by the 

Enterprise within its systems or 

processes that use a credit score for 

mortgage purchases. 

(2) Fair lending assessment. The 

Enterprise Business Assessment must 

evaluate the fair lending risk and fair 

lending impact of the credit score model 

in accordance with standards and 

requirements related to the Equal Credit 

Opportunity Act (15 U.S.C. 1691(a)(1)), 

the Fair Housing Act (42 U.S.C. 

3605(a)), and the Safety and Soundness 

Act (12 U.S.C. 4545(1)) (including 

identification of potential impact, 

comparison of the new credit score 

model with any credit score model 

currently in use, and consideration of 

potential methods of using the new 

credit score model). This evaluation 

must consider credit scores as used by 

the Enterprise within its systems or 


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processes that use a credit score for 

mortgage purchases. 

(3) Impact on Enterprise operations 

and risk management, and impact on 

industry. The Enterprise Business 

Assessment must evaluate the impact 

using the credit score model would have 

on Enterprise operations (including any 

impact on purchase eligibility criteria 

and loan pricing) and risk management 

(including counterparty risk 

management) in accordance with 

standards and requirements related to 

prudential management and operations 

and governance set forth at parts 1236 

and 1239 of this chapter. This 

evaluation must consider whether the 

benefits of using credit scores produced 

by that model can reasonably be 

expected to exceed the adoption and 

ongoing costs of using such credit 

scores, considering projected benefits 

and costs to the Enterprises. The 

Enterprise Business Assessment must 

evaluate the impact of using the credit 

score model on industry operations and 

mortgage market liquidity, including 

costs associated with implementation of 

a newly approved credit score. This 

evaluation must consider whether the 

benefits of using credit scores produced 

by that model can reasonably be 

expected to exceed the adoption and 

ongoing costs of using such credit 

scores, considering projected benefits 

and costs to the Enterprises and 

borrowers, including market liquidity 

and cost and availability of credit. 

(4) Competitive effects. The Enterprise 

Business Assessment must evaluate 

whether using the credit score model 

could have an impact on competition in 

the industry. This evaluation must 

consider whether use of a credit score 

model could have an impact on 

competition due to any ownership or 

other business relationship between the 

credit score model developer and any 

other institution. 

(5) Third-Party Vendor Review. The 

Enterprise Business Assessment must 

evaluate the credit score model 

developer under the Enterprise 

standards for approval of third-party 

service providers. 

(6) Other requirements. An Enterprise 

may establish requirements for the 

Enterprise Business Assessment in 

addition to the criteria established by 

FHFA. 

(c) Timing of Enterprise Business 

Assessment. The Enterprise Business 

Assessment must be completed within 

240 days. 

(d) Enterprise Business Assessment 

Determination. If an Enterprise approves 

an application for a credit score model, 

the Enterprise must implement the 

credit score model in its mortgage 

purchase systems that use a credit score 

for mortgage purchases. 

§ 1254.9 Enterprise actions on 

applications. 

(a) Types of actions. An Enterprise 

must approve or disapprove each 

application. 

(b) Approval of a credit score model. 

An Enterprise may approve an 

application upon completion of the 

Enterprise Business Assessment. An 

Enterprise must notify the applicant and 

the public of the approval of an 

application. 

(c) Disapproval of a credit score 

model. An Enterprise may disapprove 

an application at any time during the 

validation and approval process based 

on any of the criteria identified in the 

Credit Score Solicitation. If an 

Enterprise disapproves an application at 

any time, the Enterprise must provide 

written notice to the applicant within 30 

days of the disapproval determination, 

and the notice must provide a 

description of the reasons for 

disapproval. 

(d) Prior notice to FHFA. An 

Enterprise must notify FHFA of any 

decision to approve or disapprove an 

application at least 45 days prior to an 

Enterprise’s notification to an applicant 

or the public of its decision. 

§ 1254.10 Withdrawal of application. 

At any time during the validation and 

approval process, an applicant may 

withdraw its application by notifying an 

Enterprise. The Enterprise may, in its 

sole discretion, determine whether to 

return any portion of the application fee 

paid by the applicant. 

§ 1254.11 Pilots. 

(a) Pilots permitted. An Enterprise 

may undertake pilots or testing 

initiatives for a credit score model. If a 

pilot or testing initiative involves the 

use of a credit score model not in 

current use by the Enterprises, that 

credit score model is not required to be 

approved under this part. 

(b) Prior notice to FHFA. Before 

commencing a pilot or testing initiative, 

an Enterprise must submit the pilot or 

testing initiative to FHFA for review and 

approval. The Enterprise’s submission 

must include a complete and specific 

description of the pilot or testing 

initiative, including its purpose. FHFA 

may impose such terms, conditions, or 

limitations on the pilot or testing 

initiative as FHFA determines to be 

appropriate. 

Dated: December 12, 2018. 

Melvin L. Watt, 

Director, Federal Housing Finance Agency. 

[FR Doc. 2018–27565 Filed 12–20–18; 8:45 am] 

BILLING CODE 8070–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2018–1046; Product 

Identifier 2018–CE–049–AD] 

RIN 2120–AA64 

Airworthiness Directives; Piper 

Aircraft, Inc. Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: We propose to adopt a new 

airworthiness directive (AD) for certain 

Piper Aircraft, Inc. (Piper) Model PA– 

28–140, PA–28–150, PA–28–151, PA– 

28–160, PA–28–161, PA–28–180, PA– 

28–181, PA–28–235, PA–28R–180, PA– 

28R–200, PA–28R–201, PA–28R–201T, 

PA–28RT–201, PA–28RT–201T, PA–32– 

260, and PA–32–300 airplanes. This 

proposed AD was prompted by a report 

of a fatigue crack found in a visually 

inaccessible area of the lower main wing 

spar cap. This proposed AD would 

require calculating the factored service 

hours for each main wing spar to 

determine when an inspection is 

required, inspecting the lower main 

wing spar bolt holes for cracks, and 

replacing any cracked main wing spar. 

We are proposing this AD to address the 

unsafe condition on these products. 

DATES: We must receive comments on 

this proposed AD by February 4, 2019. 

ADDRESSES: You may send comments, 

using the procedures found in 14 CFR 

11.43 and 11.45, by any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: 202–493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE, 

Washington, DC 20590. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. 

Examining the AD Docket 

You may examine the AD docket on 

the internet at http:// 


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