The recent opinion-editorial (“Opinion: Easing GSE credit score requirements raises risk concerns”) by Clifford Rossi misrepresents both the causes of the 2008 mortgage crisis and the lessons that policymakers should draw from it today. While the crisis had many contributing factors, Fannie Mae and Freddie Mac’s purchase of subprime mortgages was not a central cause. The real failure was the widespread sale of mortgages labeled by the monopoly mortgage credit score of the era as “prime,” even though they were anything but. These defective mortgages were riddled with misrepresentation and ultimately performed like subprime loans, exposing massive breakdowns in risk management and oversight. The monopoly credit score failed, which is why Congress passed a law in 2018 to modernize the mortgage industry and allow new, more effective, and accurate credit scores to be introduced.
Not only is this diagnosis of the 2008 mortgage crisis incorrect, but the proposed cure is equally misguided. The false claim that reducing the credit score data used by mortgage credit scores will lower risk for the GSEs defies both logic and evidence. More credit data does not increase risk—it reduces it. Modern credit models such as VantageScore 4.0 use substantially more data, including trended credit report data plus alternative data such as rental payment history, to provide greater transparency and more accurate risk assessment. Arguing that less information somehow produces better outcomes would force the GSEs to fly blind and return to outdated, blunt force FICO Classic score cutoffs that failed spectacularly in 2008. That is regression, not reform.
Mischaracterizing the past and attacking today’s stronger, better credit report data is not a serious path forward. It is an invitation to repeat the very mistakes that led to the 2008 crisis in the first place.
Tony Hutchinson, EVP and Head of Public Affairs, VantageScore
