New York Lawmakers urge NY Home Loan Bank to adopt fairer credit models

WASHINGTON — Democratic lawmakers this week asked the Federal Home Loan Bank of New York to adopt modern credit scoring models to assess collateral that include alternative data like rental payments, which they say would expand homeownership opportunities for underserved and historically marginalized communities.

In a letter this week, House Democrats Ritchie Torres and Gregory Meeks — both of New York — say the Federal Home Loan Bank of New York could expand homeownership opportunities by incorporating new credit practices.

“The current housing market often excludes many creditworthy individuals due to outdated mortgage financing technologies,” they wrote. “By embracing these updated credit scoring models, the Federal Home Loan Bank of New York can play a pivotal role in helping more New Yorkers achieve the dream of homeownership.”

The Federal Home Loan Banks use consumer credit scores to assess the creditworthiness of their members’ borrowers, ensuring that the loans they support are sound and do not pose a major risk of default. By evaluating the credit scores of consumers whose loans are held by their member institutions, FHLBs can gauge the overall financial health and risk profile of these members when determining the quality of the collateral members pledge for advances.

They say alternative credit scoring models — such as VantageScore 4.0, which incorporates nontraditional data like rental payments — have great potential to level the playing field for underserved communities, particularly veterans, Hispanic Americans, African Americans, Asian Americans, and rural residents.

They note that the Federal Housing Finance Agency has mandated the use of VantageScore for Fannie Mae and Freddie Mac-guaranteed mortgages and that the Federal Home Loan Banks of San Francisco and Chicago have already adopted this inclusive scoring model.

The lawmakers urged the Federal Home Loan Bank of New York to follow suit and accept member mortgages using these modern credit scores. They argue that this move would align with the bank’s mission to support affordable housing, aiding more New Yorkers in achieving homeownership and strengthening the state’s communities and economy. 

VantageScore estimates that roughly 33 million more consumers nationwide could have access to a credit score using their model. The VantageScore model — unlike traditional credit scoring — can accommodate shorter customer credit histories, weighs credit over time rather than at fixed points and allows customers to make multiple credit inquiries in a 14-day period without credit penalties.

The move from the New York Democrats comes amid increasing bipartisan pressure from lawmakers in July 2023, who urged the FHFA Director Sandra Thompson to support the agency’s decision to mandate VantageScore for Fannie Mae and Freddie Mac mortgages. The August letter from Reps. Brittany Pettersen D-Colo., Zach Nunn R-Iowa, Vicente Gonzalez D-Texas, and Young Kim R-Ca. argued many of their constituents would benefit from the switch. 

In 2018, Congress passed the Credit Score Competition Act, allowing the FHFA to utilize the newer more “predictive” scoring models. In October 2022, the agency announced it had validated the use of new credit score models, and said it would fully implement the models by the fourth quarter of 2025.