Seal of the United States Federal Housing Finance Agency by U.S. Government is licensed under Public Domain.

Americans For Tax Reform is opposed to the Federal Housing Finance Agency’s (FHFA) decision to approve the usage of two credit score models for mortgage loans purchased by Fannie Mae and Freddie Mac.  

The FHFA’s announcement will likely open itself up to future litigation. As stated in Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the FHFA is only supposed to ensure that Fannie Mae and Freddie Mac conduct the credit score validation and approval processes adequately. Adopting a two score model is a diversion from Congressional intent, especially in light of the Supreme Court’s decision in West Virginia v. EPA. The Court invoked the major questions doctrine and affirmed that executive agencies cannot promulgate politically or economically significant rules without clear and specific authority from Congress.  

This diversion from Congressional intent is potentially unlawful and will likely spur future litigation. 

The FHFA’s announcement is irresponsible. It places taxpayer money at risk. This decision will cost taxpayers hundreds of millions of dollars more to implement than if FHFA had decided to approve one credit score model. FHFA has admitted that allowing the submission of multiple scores is more expensive and more difficult to implement than usage of a single score. Usage of multiple scores could cost more than $600 million, or a couple hundred million dollars more than if Fannie and Freddie stuck to a single score. FHFA also pointed out it could take an extra year to implement multiple score models over a single score model. 

Democrats and the Biden Administration have pressured credit reporting agencies to whitewash their credit reporting, making it easier for capital to be allocated to riskier borrowers. This new plan runs the risk of reenergizing the irresponsible financing that caused the housing market crisis in 2007.  

This announcement coupled with a separate announcement to eliminate upfront fees for risky first-time borrowers is all part of the Biden administration’s determination to ignore relevant borrower information.  

At a time when the economy is contracting and an economic recession is imminent, this decision is reckless and places political priorities above financial stability.