H.R. 8292: Original Alternative Data for Additional Credit FHA Pilot Program Reauthorization Act

This bill, known as the Original Alternative Data for Additional Credit FHA Pilot Program Reauthorization Act, aims to enhance the options available for evaluating the creditworthiness of borrowers who may not have sufficient credit history. Below are the key components of the bill:

1. Purpose of the Bill

The bill intends to create and maintain a pilot program that permits the use of additional credit information for evaluating mortgagors—borrowers taking out mortgages—when applying for Federal Housing Administration (FHA) loans. This program is particularly aimed at helping those with limited credit histories to access mortgage options.

2. Pilot Program Implementation

The program will:

• Establish procedures under the National Housing Act for using an enhanced credit scoring model that incorporates additional data.
• Allow eligible mortgagors to choose whether to participate in this pilot program.
• Restrict participation such that it does not involve any mortgagors attempting to refinance an existing loan on the same property.

3. Selection of Credit Models

The Secretary of the Department of Housing and Urban Development will be responsible for selecting one or more credit scoring models that utilize this additional data, in consultation with the Government National Mortgage Association. This selection must occur within one year after the bill's enactment.

4. Information Disclosure

Mortgage lenders participating in the pilot program must inform prospective borrowers about:

• The option to use the new credit scoring model.
• How this new model differs from the standard FHA credit rating system.
• Available housing counseling resources.

This is intended to ensure that borrowers can make informed decisions about their financing options.

5. Reporting Requirements

The Secretary will be required to regularly report to Congress on the pilot program's effectiveness, including:

• Statistics on how many borrowers opted into the new scoring model.
• Demographics of participants.
• Whether the program successfully helped individuals with insufficient credit histories.

Additional assessments will address the impact on the FHA's Mutual Mortgage Insurance Fund and the potential risks involved.

6. Funding

The bill authorizes specific appropriations to support the pilot program, including:

• $3 million for the initial year of establishment.
• $1.5 million for each subsequent year up to five years for continuation of the program.

7. Flexibility and Limitations

The Secretary has the authority to set limits on the number of participants within the pilot program and to protect proprietary information related to the new credit models being used.

8. Conclusion of the Pilot

A thorough evaluation will determine the benefits and drawbacks of this enhanced credit scoring model, and any changes deemed necessary will be reported for future consideration.

Relevant Companies

• FNMA (Fannie Mae): As a government-sponsored enterprise, changes in FHA lending practices could significantly alter Fannie Mae's mortgage purchasing strategies and risk assessments.
• FMCC (Freddie Mac): Similar to Fannie Mae, Freddie Mac may also be impacted by shifts in FHA policies and borrower credit assessment strategies.