August 16, 2019 Banconomics Compliance News Report

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  • one top compliance news item
  • action by federal regulators (distilled for your convenience)
  • distraction of the week

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August 16, 2019

Top Story

FICO's in jeopardy of losing its throne

I thought GOT ended already? Think of this as the credit score edition. Sort of. FHFA threw everyone for a loop on Tuesday when it announced that it will allow Fannie Mae and Freddie Mac to consider using an alternative to the FICO credit scoring model.

Tell me about this new contender… It's called VantageScore. It was created by VantageScore Solutions, which is a joint venture between the Big 3 in the credit world: Exquifax, Experian and Transunion. They have recently been pushing for alternatives to the traditional FICO model. After Tuesday's surprising announcement, they're getting their wish.

You said surprising. Why did you say surprising? Because in December, FHFA issued proposed rules that would have prohibited government-sponsored enterprises from using a credit-score model created by a company that's related to a credit-reporting firm. Aka VantageScore. However, critics from the credit-reporting industry and members of  congress argued that competition is a good thing for consumers. And FHFA listened.

Who wants this change? As FICO scores tend to be more conservative than its counterparts, many non-bank lenders believe that this new rule allows more people to receive mortgage approvals.

When will this change go into effect? October 15, 2019

What does FICO say about this? Joane Gaskin, FICO's VP of scores doesn't seemed too concerned. She said, “The FICO Score has been the industry standard for credit scores for decades because it is trusted by lenders to be independent, predictive and reliable, and we are confident that it will remain the superior choice by any measure established by [Fannie and Freddie]."

BANONOMIC's take… Introducing a new credit-scoring method could lower the standard for mortgage lenders to offer loans for their clients, thus allowing more people to buy homes and boost the economy. However, lowering the standards could lead to less predictable scores at best and the delivery of riskier loans at worst. And with the financial world on edge about another recession around the corner, riskier loans aren't want people want to hear right now.

Want to read it for yourself? Read HUD's final rule and the rule in the Federal Register.

Other Important Compliance News

HUD loosens its grip on FHA Insurance for condo loans

Does this mean I can finally afford a condo in Aspen? We can't make that decision for you, but FHA did make the decision to issue new guidelines on Wednesday that will simplify the agency's approval process for condo projects.  This was long-awaited and designed to encourage affordable and sustainable homeownership, particularly among first-time buyers with good credit. We're looking at you, millennials, as about 84 percent of FHA-insured condo buyers are first-time buyers. The new policy is intended to be adaptable and responsive to the market condition. For instance, under the new guidelines, certain condo units will be eligible for FHA mortgage insurance even if the project itself has not been approved by the FHA. The guidelines go into effect on October 15th, 2019. Googling a new pair of skis now.  

HUD Press Release

The Fed slices interest rates for the first time since 2008

Didn't I already know this was happening? Yes, but it's officially official now that it was published in the Federal Reserve on Monday. In case you've been living under a rock for the past three weeks, the Fed's lowered the federal funds rate rates for the first time since the recession. On Monday, it announced final amendments to lower the primary credit rate .25 percentage points, from 3 percent to 2.75 percent. Experts believe that the Fed's move could prevent the economy from weakening. However, since bond yields plummeted earlier this week and people are freaking out that we're on a doomed train to another recession, critics say the Fed needs to make more cuts... pronto... to avoid it.

Federal Register

The new and improved W-4

Oh great, tax time already? You've still got a couple months, but the Treasury and IRS just can't wait that long to bring the tax cheer for all to hear. Last Friday, they rolled out a final draft of the redesigned W-4 form for the 2020 tax year. Contain your excitement. The new form is formatted with a building-block approach and more straight forward questions. It still has the basic questions from the old W-4 form, but the questions are now written in a way that actually sort of make sense. But before you go running to HR to fill out a new form, the IRS says you're off the hook -  employees that have submitted a W-4 in any year prior to 2020 do not have to submit a new form. Phew. The Treasury and IRS released the almost finalized W-4 form in order to give employers and payroll processors a little extra study time to learn about the new form and update their systems for next year. Yay adult homework.

Treasury Press Release

Distraction of the Week

Started the week on a feeling good until the bond yield curves crushed your soul and now everyone is crying recession.

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