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TH E M R EP O RT | 63 SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T The GSE Credit Scoring Debate: To Be Continued FHFA Director says the industry favors waiting until the GSEs' Common Credit Securitization Platform is in place to change the credit-scoring model. I n a speech before The National Association of Real Estate Brokers' 70th Annual Convention in August, Mel Watt, Director of the Federal Housing Finance Agency (FHFA), said the topic of alternative credit scoring models has been among the most difficult evaluations he's undertaken during his tenure. Currently, the GSEs use the FICO credit-scoring model, which some critics claim is outdated and less granular than more recent models. But Watt said in an early August statement that after evaluating, the FHFA deduced that short-term impact on access to credit wouldn't be as significant as public discourse has implied. Watt also explained that the response FHFA has gotten from the indus - try suggests no changes should be made to the model before the Common Securitization Platform is fully operational and Fannie and Freddie have implemented single security in mid-2019. "Credit scores are only one factor the Enterprises use to evaluate loan applications and the Enterprises currently use the same or even greater levels of credit data in their underwriting systems as the credit scoring com - panies use," Watt said. "All of this means that we have enough time and flexibility to get the additional input and information we believe will be important to making the right decision." Equifax Inc., Experian Plc., and TransUnion founded VantageScore in 2006, a credit scoring model that some are saying could allow borrowers to gain more access to credit. However, in a statement to Bloomberg, Joanne Gaskin, FICO Senior Director of Product Management, said the model still wouldn't derive an accurate score for borrowers who don't have enough credit history and few consumers would meet loan requirements. "FICO is committed to helping consumers achieve sustainable homeownership," Gaskin told MReport. "This is best accom - plished by building the most predictive credit score so that responsible lending can occur." Gaskin explained that the best way to safely expand access to credit is not by lowering stan - dards, but instead by seeking out new data sources to score con- sumers who are currently credit invisible. In regards to the allega- tions that FICO is dated, Gaskin said they support the testing and adoption of FICO Score 9. "[It's] our most predictive score to date, by the GSEs and FHFA, which incorporates rental data in addition to the Telco and utility data which is considered by the FICO Score in use today," Gaskin said. "We have not lowered our minimum scoring criteria as it weakens the predictive value of the FICO Score, which has been trusted by the industry over mul - tiple market cycles." Cash Sales are Stifling Loan Originations It today's market of tight inventory, cash sales are much more common than in the past. H ousing starts charted lower than anticipated during Q2, which is putting a strain on the preferred home-buying route and forcing buyers to pursue alternative avenues, according to Freddie Mac's August Outlook. The report examined how today's limited supply of homes has resulted in a historically high cash sales share. "Usually, not many people like to invest a lot of cash into real estate, which is illiquid and has high transaction costs," said Sean Becketti, Chief Economist at Freddie Mac. This opens up homeownership to millions by furnishing mortgage capital to lenders. "However, in the cur - rent, highly competitive housing market, a cash offer is an effective way to gain an advantage over other bidders. In a cash sale, the seller doesn't have to worry about the buyer's ability to obtain a mortgage or the chances that an appraisal will come in below the agreed sales price. And each cash sale means one less mortgage origination." With Freddie Mac's prime mortgage market survey interest rates expected to remain under 4 percent for the rest of 2017, home sales should hit 6.2 million units for the year, a 3 percent jump over 2016, Freddie's report said. That number would reach even greater heights, however, if in - ventory weren't so hard to come by, the report noted. Due to the intense demand and scant supply, house price appreciation is poised to average 6.3 percent for full-year 2017, the Outlook said. For comparison's sake, in June, cash sales represented about 18 percent of all home sales. While that was sizably less than the high of 35 percent, it was still well above the historical average of 10 percent, Freddie Mac reported. So what impact might today's mad dash for cash have on the mortgage market? If cash sales hold steady around 20 percent, the report maintained, that would translate to $172 billion less in mortgage originations than if the cash share reverted to its histori - cal norm.