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S. 1685: Credit Score Competition Act of 2017

The text of the bill below is as of Aug 1, 2017 (Introduced).


II

115th CONGRESS

1st Session

S. 1685

IN THE SENATE OF THE UNITED STATES

August 1, 2017

(for himself and Mr. Warner) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To require Fannie Mae and Freddie Mac to establish procedures for considering certain credit scores in making a determination whether to purchase a residential mortgage, and for other purposes.

1.

Short title

This Act may be cited as the Credit Score Competition Act of 2017.

2.

Credit score validation; validation process

(a)

Use of credit scores by Fannie Mae in purchasing residential mortgages

Section 302(b) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)) is amended by adding at the end the following:

(7)
(A)

Definition

In this paragraph, the term credit score means a numerical value or a categorization 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.

(B)

Use of credit scores

The corporation may condition purchase of a residential mortgage by the corporation under this subsection on the provision of a credit score for the borrower only if—

(i)

the credit score is derived from any credit scoring model that has been validated and approved by the corporation under this paragraph;

(ii)

the corporation has established and made publicly available a description of the process the corporation will use to validate and approve credit scoring models, which process shall comply with any standards and criteria established by the Director of the Federal Housing Finance Agency pursuant to section 1328 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992; and

(iii)

the corporation provides for the use of the credit score by all of the automated underwriting systems of the corporation and any other procedures and systems used by the corporation to purchase residential mortgages.

(C)

Validation and approval process

The process described in subparagraph (B)(ii) shall include an evaluation of—

(i)

the criteria used to validate and approve a credit scoring model, including measures of the integrity, reliability, and accuracy of that model, and an assurance that the model is consistent with the safe and sound operation of the corporation; and

(ii)

the data necessary for the validation of the credit scoring model.

(D)

Application

If the corporation elects to use a credit score under this paragraph, the corporation shall solicit applications from developers of credit scoring models for the validation and approval of those models under the process described in subparagraph (B)(ii).

(E)

Timeframe for determination; notice

(i)

In general

The corporation shall make a determination with respect to any application submitted under subparagraph (D), and provide notice of that determination to the applicant, before a date established by the corporation that is not later than 180 days after the date on which an application is submitted to the corporation.

(ii)

Extensions

The Director of the Federal Housing Finance Agency may authorize up to 2 extensions of the date established under clause (i), each of which shall not exceed 30 days, upon a written request and a showing of good cause by the corporation.

(iii)

Status notice

The corporation shall provide notice to an applicant regarding the status of an application submitted under subparagraph (D) not later than 60 days after the date on which the application was submitted to the corporation.

(iv)

Reasons for disapproval

If an application submitted under subparagraph (D) is disapproved, the corporation shall provide to the applicant the reasons for the disapproval not later than 30 days after a determination is made under this subparagraph.

(F)

Authority of Director

If the corporation elects to use a credit score under this paragraph, the Director of the Federal Housing Finance Agency shall require the corporation to routinely update the validation and approval process described in subparagraph (B)(ii) as the Director determines necessary to ensure that the process remains appropriate, adequate, and complies with any standards and criteria established pursuant to section 1328 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.

.

(b)

Use of credit scores by Freddie Mac in purchasing residential mortgages

Section 305 of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454) is amended by adding at the end the following:

(d)
(1)

Definition

In this subsection, the term credit score means a numerical value or a categorization 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.

(2)

Use of credit scores

The Corporation may condition purchase of a residential mortgage by the Corporation under this section on the provision of a credit score for the borrower only if—

(A)

the credit score is derived from any credit scoring model that has been validated and approved by the Corporation under this subsection;

(B)

the Corporation has established and made publicly available a description of the process the Corporation will use to validate and approve credit scoring models, which shall comply with any standards and criteria established by the Director of the Federal Housing Finance Agency pursuant to section 1328 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992; and

(C)

the Corporation provides for use of the credit score by all of the automated underwriting systems of the Corporation and any other procedures and systems used by the Corporation to purchase residential mortgages.

(3)

Validation and approval process

The process described in paragraph (2)(B) shall include an evaluation of—

(A)

the criteria used to validate and approve a credit scoring model, including measures of the integrity, reliability, and accuracy of that model and an assurance that the model is consistent with the safe and sound operation of the Corporation; and

(B)

the data necessary for the validation of the credit scoring model.

(4)

Application

If the Corporation elects to use a credit score under this subsection, the Corporation shall solicit applications from developers of credit scoring models for the validation and approval of those models under the process described in paragraph (2)(B).

(5)

Timeframe for determination; notice

(A)

In general

The Corporation shall make a determination with respect to any application submitted under paragraph (4), and provide notice of that determination to the applicant, before a date established by the Corporation that is not later than 180 days after the date on which an application is submitted to the Corporation.

(B)

Extensions

The Director of the Federal Housing Finance Agency may authorize up to 2 extensions of the date established under subparagraph (A), each of which shall not exceed 30 days, upon the written request and a showing of good cause by the Corporation.

(C)

Status notice

The Corporation shall provide notice to an applicant regarding the status of an application submitted under paragraph (4) not later than 60 days after the date on which the application was submitted to the Corporation.

(D)

Reasons for disapproval

If an application submitted under paragraph (4) is disapproved, the Corporation shall provide to the applicant the reasons for the disapproval not later than 30 days after a determination is made under this paragraph.

(6)

Authority of Director

If the Corporation elects to use a credit score under this subsection, the Director of the Federal Housing Finance Agency shall require the Corporation to routinely update the validation and approval process described in paragraph (2)(B) as the Director determines necessary to ensure that the process remains appropriate, adequate, and complies with any standards and criteria established pursuant to section 1328 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.

.

3.

Authority of Director of the Federal Housing Finance Agency

Subpart A of part 2 of subtitle A of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4541 et seq.) is amended by adding at the end the following:

1328.

Regulations for use of credit scores

The Director may, by regulation, establish standards and criteria for any process used by an enterprise to validate and approve credit scoring models pursuant to section 302(b)(7) of the Federal National Mortgage Association Charter Act and section 305(d) of the Federal Home Loan Mortgage Corporation Act.

.

4.

Effective date

The amendments made by this Act shall take effect on the date that is 180 days after the date of enactment of this Act.