Joint Comment Letter to FHFA on Enterprise Regulatory Capital Framework

Dear Director Thompson:

On behalf of the American Bankers Association, Housing Policy Council, Independent Community Bankers of America, and U.S. Mortgage Insurers, we are responding to one element of the Federal Housing Finance Agency's (FHFA) Notice of Proposed Rulemaking (NPR) on enhancements to the Enterprise Regulatory Capital Framework (ERCF). Our members represent a wide range of housing finance stakeholders and GSE counterparties in both the primary and secondary mortgage markets, including lenders, servicers, and mortgage insurers. Our organizations are specifically concerned about the NPR's proposed change to the method for calculating a borrower's representative credit score once the GSEs migrate to the bi-merge credit report requirements. We are worried that this change is premature, has significant credit policy implications, and would significantly benefit from a public engagement process that our organizations have previously requested.

Key Recommendations

Our organizations wish to raise two key issues and recommendations:

1) Loan-level GSE data spanning back to 1999 to support the bi-merge migration should be published sooner than the fourth quarter of 2023 to allow the necessary analysis and impact assessment, in accordance with standards of professional practice for model estimation, ahead of the proposed implementation in the first quarter of 2024.

2) FHFA should work closely with industry to fully assess operational and regulatory compliance considerations for mortgage market participants, including for the notices and disclosures required under and Fair Credit Reporting Act (FCRA).

Proposed Timeline to Publish Classic FICO Historical Data Should Be Advanced

We view the incorporation of bi-merge requirements into the ERCF to be premature because the publicly announced timeline for GSE publication of Classic FICO historical data to support the change in credit score calculation is currently planned for the fourth quarter of 2023. Access to this data is imperative for industry stakeholders to assess the proposed methodology to determine a borrower's representative credit score and, generally, changes to credit score requirements necessitate extensive back testing to properly estimate performance projections and pricing. Without earlier access to this data, our industries are unable to provide meaningful and informed input on the FHFA's proposal to determine the representative credit score for single family mortgages by averaging the two scores used in the bi-merge credit report. We collectively urge FHFA to direct the GSEs to release the Classic FICO historical data earlier than the fourth quarter of 2023 and request that the data for both the bi-merge Classic FICO and the new credit scoring models be made available at the loan level for the full GSE performance data set, which spans back to 1999, to ensure industry participants can conduct a comprehensive analysis of the upcoming changes.

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