Alternative Data FHA Pilot Reauthorization

Summary#

This bill reauthorizes and updates a Federal Housing Administration (FHA) pilot program that tests credit scoring models that use "additional" credit information for mortgage applicants. It changes wording to make the pilot an opt-in program for applicants who choose to participate. The bill requires the HUD Secretary, after consulting the Government National Mortgage Association, to select one or more commercially available scoring models that use additional data and to consider relevant Federal Housing Finance Agency criteria. The pilot may not be used for mortgages whose proceeds pay off an existing loan on the same property (i.e., certain refinances).

The bill requires mortgage lenders in the pilot to give prospective borrowers a notice that explains the opt-in choice, how the pilot model differs from FHA's normal models (including the types of additional data used), and lists HUD-approved local housing counseling agencies. Lenders must also provide information to let borrowers compare lending options under the pilot model and the standard FHA model. The bill says borrowers who opt in can still later seek credit determinations using other information. It also protects proprietary information from forced disclosure.

The Secretary must report to Congress with detailed data on participation, approval rates, demographics, impacts on borrowers with thin or no credit files, predictive effectiveness for defaults, participation rates of mortgagees, and any effects on the Mutual Mortgage Insurance Fund. Reports must be publicly posted on HUD's website. The Secretary may cap participation. The bill authorizes specific appropriations for the pilot.

What it means for you#

  • If you are a prospective FHA borrower, you could be offered the choice to opt into a credit score that uses additional data. You must get a notice explaining the choice and how to compare loan options.
  • If you opt in, your application may be evaluated with the selected additional-data scoring model. You can still ask for a credit check or underwriting decision using other information.
  • If you are refinancing by using mortgage proceeds to pay off a loan on the same property, the pilot may not apply to your loan.
  • If you are a mortgagee (lender) and participate in the pilot, you must provide notices and comparison information and may appear on a public list of participating lenders.

Expenses#

The bill authorizes specific funding amounts: $3,000,000 for fiscal year 2023 and $1,500,000 for each of fiscal years 2024 through 2027 to establish and carry out the pilot. No publicly available information on total or long-term costs, savings, or net fiscal effects beyond these authorizations is included in the bill text.

Proponents' View#

The bill states the goal of the pilot is to examine and evaluate the benefits of using a credit scoring model that uses additional data. It therefore aims to test whether additional-data models help evaluate applicants, including those with thin or no credit files.

Opponents' View#

No publicly available information.