WASHINGTON — Are the two biggest players in the American mortgage arena — Fannie Mae and Freddie Mac — needlessly preventing millions of African-Americans, Latinos and young consumers from qualifying for a loan because they don’t have a FICO credit score?
Some critics say the answer is an emphatic yes. James H. Carr, formerly a vice president at Fannie Mae and now a senior policy fellow with the nonprofit Opportunity Agenda, says the failure of both corporations to adopt up-to-date, more sophisticated credit scoring models has a “disparate impact” on minority consumers and is discouraging first-time home purchases. Large numbers of Americans cannot be scored using the decade-old FICO models that are still mandatory at Fannie and Freddie, says Carr, and as a result they can’t qualify for mortgages.
Typically these are consumers who make minimal use of traditional forms of credit. They pay their bills for rent, utilities and cellphones, but none of these are reported to the national credit bureaus — Equifax, Experian and TransUnion. Many are young, just starting out in their careers. Disproportionately they are minorities.
Some civil rights and financial groups agree that to more fairly serve the full range of home buyers, the two dominant home lending corporations need to adopt the technologically superior and more inclusive models that are now available from Fair Isaac, developer of the FICO score, and its chief competitor, VantageScore LLC.
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