[Federal Register Volume 65, Number 235 (Wednesday, December 6, 2000)]
[Notices]
[Pages 76273-76274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30987]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4623-N-01]


Deployment of the FHA TOTAL Mortgage Scorecard

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Notice.

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SUMMARY: This notice announces HUD's intention to deploy the FHA TOTAL 
Scorecard for mortgage industry use. TOTAL refers to ``Technology Open 
To All Lenders.'' The FHA TOTAL Scorecard, developed by HUD, assesses 
the credit worthiness of FHA borrowers by evaluating certain mortgage 
application and borrower credit information that has been statistically 
proven to accurately predict the likelihood of borrower default. The 
FHA TOTAL Scorecard is not an automated underwriting system; rather, it 
is a mathematical equation intended to be used within an automated 
underwriting system. HUD wishes to deploy the FHA TOTAL Scorecard with 
industry users

[[Page 76274]]

who share the Department's vision of increasing homeownership 
opportunities.
    In order to participate in the Scorecard initiative, interested 
parties should have an automated underwriting system (``AUS'') in 
place. As this product offering relates solely to the deployment of a 
scorecard, the AUS will utilize its own checks for FHA eligibility 
rules and its own functionality for loan specific messages. Based on 
the Scorecard configurations, the industry user must be equipped with a 
Sybase Database Server that receives calls in XML or Sybase Open 
Client. In addition, the user must have a communication link to HUD 
(https). In order to maximize the effectiveness of the Scorecard, 
interested participants should consult their internal IT personnel to 
ensure sufficient capacity to house the FHA TOTAL Scorecard. 
Participants should be prepared to fully support the server under their 
current IT Operations center. Additionally, any programming related to 
required inputs/connectivity to the FHA TOTAL Scorecard are the 
responsibility of the industry users.

ADDRESSES: Interested persons are invited to submit comments and 
responses to the Rules Docket Clerk, Office of the General Counsel, 
Room 10276, Department of Housing and Urban Development, 451 Seventh 
Street SW, Washington DC 20410-0500. Communications should refer to the 
above docket number and title. Facsimile (FAX) responses are not 
acceptable. A copy of each response will be available for public 
inspection and copying during regular business hours (7:30 a.m. to 5:30 
p.m. Eastern Time at the above address).

FOR FURTHER INFORMATION CONTACT: Laura Donnelly, Office of the Deputy 
Assistant Secretary for Single Family Housing, Room 9278, Department of 
Housing and Urban Development, 451 Seventh Street S.W., Washington, 
D.C., 20410, telephone (202) 708-0614 (this is not a toll-free number). 
Hearing or speech-impaired individuals may access these numbers via TTY 
by calling the Federal Information Relay Service at 1-800-877-8339 
(this is a toll-free number).

SUPPLEMENTARY INFORMATION:

Background, Purposes and Objectives

    In July 1996, the FHA, an entity within the Department of Housing 
and Urban Development (``HUD'' or the ``Department'') issued Mortgagee 
Letter 96-34. That Mortgagee Letter set forth HUD/FHA's requirements 
and processes for approving automated mortgage underwriting systems 
(``AUSs'') to underwrite HUD/FHA insured mortgage loans. Mortgagee 
Letter 96-34 permitted lenders to utilize various AUSs in underwriting 
FHA loans, following screening, evaluation and approval of the AUS by 
FHA. Pursuant to Mortgagee Letter 96-34, two individual privately-
developed mortgage scorecards were approved by HUD for use in the 
processing of HUD/FHA mortgage loans. Both of these systems employ 
mortgage scorecards developed by the system vendors using FHA borrower 
data. This notice is to inform the public that FHA intends to rescind 
approval of these proprietary scorecards and replace with the FHA TOTAL 
Scorecard. TOTAL refers to ``Technology Open To All Lenders.''
    A Mortgagee Letter will be issued to supersede Mortgagee Letter 96-
34, and outline the basic requirements for an AUS to be used in 
underwriting FHA loans; this future Mortgagee Letter may be further 
amended or supplemented by future mortgagee letters, handbooks, policy 
statements, or lender notices concerning AUSs. Prior approvals for use 
of privately-developed mortgage scorecards will be formally rescinded 
by written notice to the entities previously receiving such approvals. 
HUD anticipates providing three months prior notice of rescission and 
thereafter HUD will require use of the FHA TOTAL Scorecard in any AUS. 
Users of the FHA TOTAL Scorecard will receive documentation relief and 
credit policy waivers provided by FHA. FHA has also developed a Use 
Agreement which sets forth the requirements and responsibilities for 
implementation and use of the FHA TOTAL Scorecard by qualified lenders, 
government sponsored enterprises and their contractors, sponsors, loan 
correspondents and authorized agents that purchase, sell, underwrite or 
document HUD/FHA mortgage loans for lenders under HUD/FHA's Direct 
Endorsement procedures for various HUD/FHA mortgage insurance programs 
(hereinafter ``Lenders''). Please note that while FHA wishes to permit 
access to the FHA TOTAL Scorecard as widely as possible, only lenders 
with Direct Endorsement status may ``underwrite'' FHA insured loans, 
with or without use of AU systems, on FHA's behalf.
    HUD/FHA's objectives for entering into the Use Agreement are to:
    (a) Provide for the use and implementation of the FHA TOTAL 
Scorecard in AUSs used during the process of underwriting FHA loans;
    (b) Identify and approve creditworthy borrowers that may have been 
excluded from homeownership under traditional HUD/FHA underwriting 
guidelines;
    (c) Continue to ensure that no borrower will be denied an FHA-
insured mortgage loan solely on the basis of a ``refer'' risk 
classification by an AUS.
    (d) Expand access to mortgage credit for low-and moderate-income 
borrowers and other under served populations and locations and to 
discourage unlawful discrimination against borrowers protected by the 
Fair Housing Act and the Equal Credit Opportunity Act;
    (e) Facilitate access to and reduce the cost and time associated 
with originating HUD/FHA-insured mortgages;
    (f) Enhance HUD/FHA's ability to assess and manage risk and 
preserve the actuarial soundness of HUD/FHA's mutual mortgage insurance 
fund;
    (g) Facilitate and encourage a standardized, industry-wide 
capability for communication and exchange of information among members 
of the mortgage lending community.

This Notice

    HUD is in the process of deploying the FHA TOTAL Scorecard and will 
rescind the approval of scorecards under Mortgage Letter 96-34, ML 98-
14 and ML 99-26. Upon completion of FHA's deployment efforts, FHA will 
require use of the FHA TOTAL Scorecard in any AUS and Users will 
receive documentation relief and credit policy waivers approved by FHA. 
HUD's goals are to increase the availability of the FHA TOTAL Scorecard 
and increase lenders' efficiencies through loan level data transfer on 
a real-time basis thereby reducing lenders reporting requirements and 
improving workflow processes through reduced data entry. Other goals 
include improving underwriting efficiencies by lenders, decreasing 
losses to FHA's insurance fund, and integrating the use of automated 
underwriting systems into FHA's existing processes and workflow 
including mortgage insurance endorsement processing.
    To that end, HUD continues to work with Users to deploy the FHA 
TOTAL Scorecard.

    Dated: November 29, 2000.
William C. Apgar,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 00-30987 Filed 12-5-00; 8:45 am]
BILLING CODE 4210-27-P