[Alice] All right, thank you both. We’re gonna move on now into the legislative segment. In my segment, what I want to cover today, we shared a little bit on a text, and I want to thank Erin D. for bringing this back around. I love surfing LinkedIn for what people are talking about. And she brought up this post that Bill Pulte had. It was back on the 9th, that he said, he says, “Good news for American homebuyers. Effective today, in the interest of transparency, all mortgage-backed securities and all credit risk transfers, CRTs, and any securitization products issued,” they will, I’m gonna paraphrase here, open up, and they’ll be including the VantageScore, of course, and the FICO score, but they’re also going to include their credit data. So I don’t think we’ve actually seen this yet. This is just a tweet that came out. But there’s a lot to unpack here. So for like we talked about before the show got started, when you, if you actually remember when you took your DU and LP training back 20 years ago, I know they started this messaging, they told us they don’t use the FICO score in automated underwriting. We see it, we need it for pricing, but Fannie and Freddie generate their own algorithms, their own… they take the raw credit data and they come up with a credit decision based on their own analysis. Certainly there’s certain things that they will care more about than the FICO model or any model might be designed so, for example, they’re gonna care a lot more about your mortgage history than other compo- than a general FICO score that might just put a mortgage component in the same as any other installment debt. And that’s just an example of how as the agencies, we don’t know exactly what’s in that black box, but now they’re talking about being more transparent on that. So it’s a very interesting concept to think about, will we actually see what Fannie and Freddie are using and how they analyze that? And Bill, you came back with some really interesting perspective on that, on the what if. If Fannie and Freddie really do open up that box and show us the credit, their credit data, the raw data that they are using to make the loan decision now what happens?
[Bill] Yeah, so there, are a couple of things. First, in parsing words immediately including/attaching that Fannie/Freddie data. I’m just thinking how the data moves to, throughout the investor side of the world, and I can envision… So you’ve got, 1,000 loans in a pool, so what are you gonna do, include 1,000 PDFs of the credit data and how they evaluated it?
[Alice] It- And then I’m gonna have to use AI to analyze all that again?
[Bill] Yeah. Okay. I get it, but again, as I went back and was looking at it, and I’m focusing on the word attaching, so mechanically I’m very curious as how it gets done. The other piece of it, and the more important piece is so the investor side of the world so they’ve never had detail on Fannie’s s- credit scoring data. So how they take a 20-page credit report and how that gets, condensed and evaluated in DU or that’s the black box. So the way I look at this is they’re basically saying, from the credit side anyway, they’re opening up the black box and providing that to the investors. The investor side of the world, because they haven’t had the black box, they’ve had to build all of their default prepayment models off of the credit score, ‘ cause that’s all they have. So now that they’re gonna get the raw data and we always talk about, we’ll just use Fannie Mae, keep it simple. So Fannie Mae LLPAs, but Fannie LLPAs in large part come from how the investors are valuing the risk the investors and Fannie Mae. So if the investor side can come up with a way to evaluate the risk without having the need to use the score, then maybe this is a play where, this is Fulton’s shot to- push the, whether it’s a single merge, the buy merge, what- whatever the plan is to get the cost of the score from FICO, Cause again, the credit bureaus generate the data, which then goes to FICO to generate the score, and that’s the big cost piece that everybody’s been fighting over. If he’s going around that and saying, “We’re gonna give the investors the raw data so the investors could care less about the score,” then maybe this is all a way to get FICO to the table and say hold on. Maybe we can sharpen our pencil a lot.” And I keep going around and I keep coming back to that being a plausible scenario, because I haven’t figured out how they can realistically give them the data in a way that the investors can actually do anything with it.
[Alice] Cause it’s raw data from every consumer’s- Yeah credit report, right? And the s- Yeah … the whole advantage of the score is I don’t have to go look at all of the individual data. I can just work with that number. And so now to put that in their lap, unless there’s a summary of sorts that they’re going to provide, so a lot of unanswered questions on the how.
[Bill] For all we know, Fannie could have their own number that says, “Okay, you have X number of trade lines and all the payments have been made on time, and you’re at 50% of your balances, so we’re gonna give it a score of five.” Maybe that’s as simple as it’s gonna be. We’ve no idea.
[Alice] Yeah, it’ll be interesting- I- … to see if it actually plays out, but I think your thoughts on, is this really just a wake-up call for FICO that there is a way around them if the agencies were to do this, at least for those products?
[Bill] Yeah, ’cause when you think about it, opening up VantageScore has not had… it, it’s still early in the game, right? But it has not had the desired effect of slowing down the massive price increases, from FICO. And, to take something that would be a just wild, unthought out- plan to try and back FICO into a corner, on the plausibility scale with Pulte, that probably would rank a 10 in my mind.
[Alice] I’m always curious too with tweets. Did they talk about it with anybody before they sent the tweet? Or is everybody in the back shop going, ” What did he say today? What are we gonna try and figure out?” Yeah. I’m always curious. I would love to have that background on some of these tweets.
[Bill] So to digress for a second, but on the tweet realm there was a couple of just… I saw it in Inside Mortgage Finance, but I don’t remember exactly where it came from. But at the end of last week about how owned portfolio of securities has actually been decreasing. And this whole tweet from six months ago where, Fannie and Freddie are gonna start buying 200 billion in MBS and blah, blah, blah, and it hasn’t materialized. So Pulte’s tweeting this morning going we’re about to start buying MBS big time.” Okay. Maybe, again, go back to what we said last week. maybe this time he’ll get more agreement within the GSEs because the last 10 people that said, “No, that’s a bad idea,” aren’t with the GSEs anymore.
[Alice] David, did you wanna add anything? I saw you over there just ready to jump in.
[Kittle] I’m just sitting here l- chuckling at Bill ’cause everything he’s saying is spot on. The, possibilities of why it was released and what was said and the timing of it are endless. And you go back to the last statement that Bill just said. A bunch of them got fired. You don’t agree, you’re out of here. I think it’s an interesting concept, and I myself would not put that past Mr. Pulte
[Alice] All right. We will end there on my segment. So thank you both for jumping in on that one. I thought it was a interesting topic. That’s what we’re left with right now. So when messaging from various sources is incomplete one sentence, it makes for a lot of podcast fodder to try and figure out what did they really mean and where could this really go and we just have to wait. So how so many of the conversations just seem to have to end.
[Kittle] Some of the things that, Bill did say have, if some of them are true and you take them out, a year or whatever, or two years and run that scenario, can change everything from repurchase to securitization and pricing- That’s- and everything. And how does AI… alan’s not with us today, but how does AI play into that? How does AI play in, into credit bureaus?
[Alice] So I’m gonna make a note on this page in this conversation and go, let’s look at this again on September 21st of 2027 and see what happened and do a comparison.
[Kittle] A- and remember, all these, i- if they come true, Bill and I agreed, but if they didn’t, it was Bill’s prediction alone.
[Alice] Blame it on Les. He’s not here either, that’s right. All right. Thank you both for a great conversation on some really crazy things that have been going on in our market.
Alice Alvey, Master CMB
She handles development of their World Class Training program designed to support UHM partners and organizational effectiveness.
Prior to UHM, Alice served as Senior Vice President at Indecomm leading the Indecomm-Mortgage U division, Internal QA and Compliance and SaaS technologies. Indecomm acquired Mortgage U in 2013, where Alice was President/Co-founder, providing training and consulting since 1996. Prior to MU she served as SVP of Operations at a national bank overseeing operations for wholesale, retail and correspondent from underwriting through servicing, and compliance.
She has been in the trenches of mortgage lending operations from application through servicing for over 30 years. Her authoring work in training content, policies and procedures and the FHA/VA Practical guides illustrates her ability to bridge regulatory requirements with day-to-day operations.
Alice has been a weekly contributor to the Lykken on Lending show since its beginning in April 2009 and has made her weekly contributions to 450+ episodes!