Additional Credit FHA Pilot Program

Summary#

This bill directs the Department of Housing and Urban Development (HUD) to run a pilot program under section 258 of the National Housing Act. The pilot will test using commercially available credit scoring models that include "additional" data (instead of the bill's prior term "alternative") to help evaluate the creditworthiness of mortgagors and prospective mortgagors. Participation is optional: borrowers must be given a clear opt-in choice. HUD must select model(s) within one year after the subsection takes effect and consult with the Government National Mortgage Association. The pilot cannot be used for mortgages whose proceeds prepay or pay off an existing loan on the same property. Mortgagees in the pilot must give notices explaining the option, how the pilot model differs from FHA’s usual models, and local HUD-approved housing counseling agencies. Participating lenders must also give information allowing borrowers to compare results from the pilot model and the standard FHA model. The bill allows borrowers who opt into the pilot to later seek a creditworthiness determination using other information. Proprietary model information need not be disclosed. HUD must report to Congress on many items, including participation rates, approval rates, demographic data, effects for borrowers with thin or no credit files, the pilot’s effectiveness at predicting defaults, and any impact on the Mutual Mortgage Insurance Fund. HUD may cap participation. The bill authorizes specific appropriations for carrying out the pilot.

What it means for you#

  • If you are a prospective borrower with little or no credit history, lenders in the pilot must offer you the choice to opt into using an additional-data credit scoring model.
  • Lenders must provide a notice that explains the option, the types of extra data used, nearby HUD-approved housing counseling agencies, and a side-by-side comparison of results from the pilot model and the standard FHA model.
  • Choosing the pilot is voluntary. You can later ask for underwriting based on other credit information.
  • HUD may limit how many loans or lenders can join the pilot.

Expenses#

  • The bill text authorizes $3,000,000 for fiscal year 2023 to establish and carry out the pilot, and $1,500,000 for each of fiscal years 2024 through 2027 for carrying out the pilot.
  • No publicly available information on projected net effects to the Mutual Mortgage Insurance Fund or total federal budget costs beyond these authorizations is provided in the bill text.

Proponents' View#

  • The bill states its goal is to "examine and evaluate the benefits" of using credit scoring models that use additional data. It requires HUD to report whether borrowers with thin or no credit files benefit and how. Supporters, as reflected by the bill’s stated goals and reporting requirements, expect the pilot to test whether additional data can improve access to mortgage credit for borrowers with limited credit histories and to measure that effect.

Opponents' View#

  • The bill requires HUD to evaluate the pilot’s impact on the Mutual Mortgage Insurance Fund, whether pilot income offsets risk, and whether the pilot affects other borrowers’ access to FHA products. Those required evaluations indicate concerns about potential risks to the fund and possible effects on nonparticipating borrowers.
  • No publicly available information about organized opposition or specific objections is included in the bill text.