[House Report 116-663]
[From the U.S. Government Publishing Office]
116th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 116-663
======================================================================
ALTERNATIVE DATA FOR ADDITIONAL CREDIT FHA PILOT PROGRAM
REAUTHORIZATION ACT
_______
December 17, 2020.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Ms. Waters, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 123]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 123) to authorize a pilot program under section
258 of the National Housing Act to establish an automated
process for providing additional credit rating information for
mortgagors and prospective mortgagors under certain mortgages,
having considered the same, reports favorably thereon with an
amendment and recommends that the bill as amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 3
Background and Need for Legislation.............................. 4
Section-by-Section Analysis...................................... 4
Hearings......................................................... 5
Committee Consideration.......................................... 5
Committee Votes.................................................. 5
Statement of Oversight Findings and Recommendations of the
Committee...................................................... 8
Statement of Performance Goals and Objectives.................... 8
New Budget Authority and CBO Cost Estimate....................... 8
Committee Cost Estimate.......................................... 12
Unfunded Mandate Statement....................................... 13
Advisory Committee............................................... 13
Application of Law to the Legislative Branch..................... 13
Earmark Statement................................................ 13
Duplication of Federal Programs.................................. 13
Changes to Existing Law.......................................... 13
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Alternative Data for Additional Credit
FHA Pilot Program Reauthorization Act''.
SEC. 2. PILOT PROGRAM FOR BORROWERS WITHOUT SUFFICIENT CREDIT HISTORY.
Section 258 of the National Housing Act (12 U.S.C. 1715z-24) is
amended--
(1) in subsection (a)--
(A) by striking ``carry out'' and inserting
``establish and carry out'';
(B) by striking ``establish, and'';
(C) by inserting ``who elect to participate in the
pilot program'' before the second comma;
(D) by striking ``mortgagors and'';
(E) by inserting after ``their creditworthiness'' the
following: ``and have opted into the use of additional
credit information''; and
(F) by striking ``alternative'' each place such term
appears and inserting ``additional'';
(2) in subsection (b), by adding after the period at the end
the following: ``The pilot program may not be carried out with
respect to any mortgagor or prospective mortgagor under a
mortgage the proceeds of which are used to prepay or pay off an
existing loan secured by the same property.'';
(3) by striking subsection (c);
(4) by redesignating subsections (b) (as amended by paragraph
(2) of this subsection) and (d) as subsections (c) and (k),
respectively;
(5) by inserting after subsection (a) the following new
subsection:
``(b) Goal.--The goal of the pilot program under this section shall
be to examine and evaluate the benefits of using such a credit scoring
model that uses additional data.'';
(6) by inserting after subsection (c) (as so redesignated by
paragraph (4) of this subsection) the following:
``(d) Additional Credit Information.--The Secretary shall, after
consultation with the Government National Mortgage Association and not
later than one year after the date of the enactment of this subsection,
select one or more commercially available credit scoring models that
will be available under the pilot and that utilize additional data, as
the Secretary considers appropriate based on the goals of the pilot
program. In selecting the model or models to use, the Secretary shall
consider the criteria under part 1254 of the regulations of the
Director of the Federal Housing Finance Agency (12 C.F.R. Part 1254) to
the extent appropriate.
``(e) Notification.--
``(1) Notice of options.--The Secretary shall develop a
notice for prospective mortgagors, and require mortgagees to
provide such notice to prospective mortgagors, that informs
prospective mortgagors of--
``(A) the ability to opt into the use of the credit
scoring model selected for use under the pilot program;
``(B) information on how the pilot program credit
scoring model differs from the FHA's current credit
scoring models, including the types of additional data
that are included in the pilot program model; and
``(C) housing counseling agencies in the area that
are approved by the Department of Housing and Urban
Development.
``(2) Comparison of lending options.--The Secretary shall
require mortgagees participating in the pilot program to
provide information to prospective mortgagors sufficient to
allow comparison of the mortgagor's lending options using the
credit scoring model under the pilot program and using the
credit scoring model then in effect for mortgagors not opting
into the use of the credit scoring model under the pilot
program.
``(f) Underwriting Options.--This section may not be construed to
preclude a prospective mortgagor who opts to use an approved credit
scoring model under the pilot program under this subsection in
connection with underwriting for a mortgage insured under this title
from thereafter obtaining a determination of creditworthiness involved
in underwriting for such mortgage using information other than that
provided under such approved credit scoring model.
``(g) Protection of Proprietary Information.--This section may not be
construed to require the disclosure or sharing of any proprietary
information.
``(h) Reporting.--
``(1) In general.--The Secretary shall submit reports to the
Congress in accordance with paragraph (2) that provide a
detailed evaluation of the effectiveness of the pilot,
including data that shows--
``(A) the number of mortgagors who had the option to
opt into using additional credit information and the
number of mortgagors who opted into using additional
credit information;
``(B) the total number and percent of mortgagors who
opted into the pilot and were subsequently approved for
a mortgage;
``(C) demographic information about mortgagors who
opt into using additional credit information, compared
to demographic information about mortgagors generally,
which shall include race, ethnicity, marital status,
sex or gender, geographic location regarding mortgaged
properties, and any other information the Secretary
deems appropriate;
``(D) whether or not mortgagors with no or thin
credit files benefitted from having this option and
how;
``(E) whether or not other borrowers who did not have
thin or no credit files benefitted from this option and
how;
``(F) the effectiveness of the additional credit
information in predicting mortgage loan default;
``(G) the rate of participation of mortgagees in the
pilot program;
``(H) whether or not the pilot program had an impact
on the Mutual Mortgage Insurance Fund, in general, and
specifically whether it had an impact on the economic
net worth ratio of the Fund;
``(I) whether or not there was sufficient income from
the pilot program to offset the risk posed to such Fund
by the pilot program;
``(J) whether the pilot program had an impact on the
ability of other borrowers not participating in the
program to obtain the products and services of the FHA;
and
``(K) any other information the Secretary determines
relevant.
``(2) Submission.--The Secretary shall submit a report
described in paragraph (1)--
``(A) not later than 6 months after the conclusion of
the 2-year period beginning on the date on which the
Secretary begins accepting the additional credit scores
through the pilot program established by the Secretary
pursuant to this section; and
``(B) not later than 1 year after the conclusion of
the 5-year period beginning on the date of the
enactment of the Alternative Data for Additional Credit
FHA Pilot Program Reauthorization Act.
``(3) Report on selection of additional credit model.--Not
later than the conclusion of the 6-month period that begins
upon the conclusion of the one-year period under subsection
(d), the Secretary shall submit to the Congress a report
explaining why the additional credit scoring model or models
selected pursuant to subsection (d) were selected in lieu of
other commercially available credit scoring models.
``(4) Public availability of information.--The Secretary
shall make publicly available in an easily accessible location
on the website of the Department--
``(A) each report submitted to the Congress pursuant
to this subsection; and
``(B) information about the pilot program, which
shall include an up-to-date listing of mortgagees
participating in the pilot program.
``(i) Authority to Limit Participation.--The Secretary may establish
a limitation to cap participation in the pilot program under this
section.
``(j) Authorization of Appropriations.--There is authorized to be
appropriated--
``(1) $3,000,000 for fiscal year 2020 for establishing and
carrying out the pilot program under this section; and
``(2) $1,500,000 for each of fiscal years 2021 through 2024
for carrying out the pilot program under this section.''; and
(7) in subsection (k), as so redesignated by paragraph (4),
by striking ``5-year period beginning on the date of the
enactment of the Building American Homeownership Act of 2008''
and inserting ``5-year period beginning on the date of the
enactment of the Alternative Data for Additional Credit FHA
Pilot Program Reauthorization Act''.
Purpose and Summary
On January 3, 2019, Rep. Al Green introduced H.R. 123, the
``Alternative Data for Additional Credit FHA Pilot Program
Reauthorization Act,'' which would reauthorize the Department
of Housing and Urban Development's (HUD) statutory authority to
implement a pilot program under the Federal Housing
Administration (FHA) to increase credit access for borrowers
with thin or no credit files through the use of additional
credit data. The ANS would also require HUD to report pilot
program findings.
Background and Need for Legislation
The information and data traditionally used to make lending
decisions and establish credit scores does not estimate the
score for the 26 million consumers without a credit history or
the 19 million consumers with credit histories that are too
short or outdated to form a credit score, groups that are often
labeled as ``credit invisible'' or ``unscorable.''
Section 2124 of the Housing and Economic Recovery Act of
2008 (HERA) directed the Secretary of HUD to create a pilot
program at FHA aimed at testing the use of additional credit
data--such as history of rental or utility payments--to
underwrite FHA borrowers in the hopes of including more credit
invisible and unscorable borrowers. However, the statutory
authority for the pilot program expired in July 2013 and the
pilot program was never initiated.
H.R. 123 renews the authority for this pilot with greater
specificity around how the program should be structured and
would authorize the appropriation of $3 million to establish
the pilot program and $1.5 million for each year thereafter to
administer and maintain the five-year pilot. Specifically, the
bill directs HUD to choose one or more commercially available
credit reporting models and provide FHA borrowers with the
option to opt into this alternative model. H.R. 123 also
requires HUD to provide borrowers with local housing counseling
information, and ultimately report on the findings of the pilot
program to Congress.
Currently, borrowers who are credit invisible or unscorable
can still obtain an FHA loan, if their lender goes through the
manual underwriting process. However, the automated
underwriting pilot program could provide a faster and more
efficient avenue that encourages more lenders to work with
traditionally underserved borrowers, while testing its success
in increasing access to credit.
H.R. 123 is supported by the National Consumer Law Center
(on behalf of its low-income clients), Americans for Financial
Reform, and the Center for Responsible Lending.
Section-by-Section Analysis
Section 1. Short title
This section provides that H.R. 123 may be cited as the
``Alternative Data for Additional Credit FHA Pilot Program
Reauthorization Act.''
Section 2. Pilot program for borrowers without sufficient credit
history
This section amends Section 258 of the National Housing Act
to reauthorize a HUD pilot program at FHA to test the use of
additional credit data through the selection of one or more
commercially available credit scoring models. Over a period of
5-years from the enactment of H.R. 123, FHA borrowers looking
to secure a home purchase mortgage would receive notification
of their ability to opt into the pilot program, how the pilot
credit scoring model(s) differ from existing FHA credit scoring
models, including the types of additional data used, and the
availability of local, HUD-approved housing counseling
agencies.
Borrowers who opt into the pilot program would have the
ability to compare all lending options made available to them
through the pilot credit scoring model(s) as well as through
the previously existing models used by FHA. Nothing in this
section precludes a borrower who opts into the pilot program
from otherwise obtaining an FHA mortgage.
HUD is not required to disclose proprietary information and
has the ability to establish a limitation to cap the
participation in the pilot program.
Under this amendments made by this section, HUD is required
to provide two reports to Congress evaluating the effectiveness
of the pilot, including the extent to which borrowers opted in,
the demographics of such borrowers, and the benefits to no or
thin credit file borrowers.
This section authorizes $3 million in fiscal year 2020 to
establish the program and $1.5 million in each of fiscal years
2021 through 2024 to carry out the pilot program.
Hearings
For the purposes of section 103(i) of H. Res. 6 for the
116th Congress, the Committee on Financial Services held a
hearing on July 25, 2019, entitled ``Examining the Use of
Alternative Data in Underwriting and Credit Scoring to Expand
Access to Credit'' to consider a discussion draft of H.R. 123.
Testifying before the Committee were: Chi Chi Wu, Attorney,
National Consumer Law Center; Aaron Rieke, Managing Director,
Upturn; Kristin Johnson, McGlinchey Stafford Professor of Law,
Tulane University Law School; Lawrance Evans, Managing Director
of Financial Markets & Community Investment, Government
Accountability Office; and Dave Girouard, Founder & CEO,
Upstart.
Committee Consideration
The Committee on Financial Services met in open session on
September 18, 2019 and ordered H.R 123 to be reported favorably
to the House with an amendment in the nature of a substitute by
a vote of 33 ayes and 22 nays, a quorum being present.
Committee Votes and Roll Call Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following roll call votes occurred during the Committee's
consideration of H.R. 123:
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the descriptive portions of this report.
Statement of Performance Goals and Objectives
Pursuant to clause (3)(c) of rule XIII of the Rules of the
House of Representatives, the goals of H.R. 123 are to examine
and evaluate the benefits of using a credit scoring model or
models that use additional data to expand access to affordable
FHA credit for borrowers who are credit invisible or
unscorable.
New Budget Authority and CBO Cost Estimate
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives and section 308(a) of the
Congressional Budget Act of 1974, and pursuant to clause
3(c)(3) of rule XIII of the Rules of the House of
Representatives and section 402 of the Congressional Budget Act
of 1974, the Committee has received the following estimate for
H.R. 123 from the Director of the Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, November 18, 2019.
Hon. Maxine Waters,
Chairwoman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Madam Chairwoman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 123, the
Alternative Data for Additional Credit FHA Pilot Program
Reauthorization Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Robert Reese.
Sincerely,
Phillip L. Swagel,
Director.
Enclosure.
The bill would
Authorize appropriations for the Federal
Housing Administration (FHA) to create a pilot program
for a credit-scoring system using alternative data
Permit FHA to insure mortgages for
homebuyers who meet credit score requirements that are
based on that alternative data
Estimated budgetary effects would primarily stem from
Spending funds authorized to be appropriated
Increases in the premiums collected from
mortgagors with FHA insurance.
Bill summary: H.R. 123 would reauthorize a pilot program in
the Federal Housing Administration (FHA) for five years,
through 2024. That program would develop an automated system to
calculate consumer credit scores using alternative
information--such as performance on rental payments, utility
bills, and insurance payments--that could be used by lenders to
determine if a prospective borrower is eligible for an FHA-
backed mortgage. The bill would authorize appropriations
totaling $9 million over the 2020-2024 period for FHA to
develop and implement the system for lenders. H.R. 123 also
would require FHA to report to the Congress on the
effectiveness of the pilot program.
Estimated Federal cost: The estimated budgetary effect of
H.R. 123 is shown in Table 1. The costs of the legislation fall
within budget function 370 (commerce and housing credit).
TABLE 1.--ESTIMATED CHANGES IN SPENDING SUBJECT TO APPROPRIATION UNDER H.R. 123
----------------------------------------------------------------------------------------------------------------
By fiscal year, millions of dollars--
------------------------------------------------------------
2020 2021 2022 2023 2024 2020-2024
----------------------------------------------------------------------------------------------------------------
Pilot Program Administration:
Authorization.................................. 3 2 2 2 2 9
Estimated Outlays.............................. 2 2 2 2 2 9
FHA Insurance:
Estimated Authorization........................ 0 -3 -5 -5 -5 -18
Estimated Outlays.............................. 0 -3 -5 -5 -5 -18
Total Changes:
Estimated Authorization.................... 3 -1 -4 -4 -4 -9
Estimated Outlays.......................... 2 -1 -4 -4 -4 -10
----------------------------------------------------------------------------------------------------------------
Components may not sum to totals because of rounding; FHA = Federal Housing Administration.
Basis of estimate: For this estimate, CBO assumes that H.R.
123 will be enacted near the end of 2019. CBO also assumes that
future appropriation acts will authorize FHA to increase the
amount of mortgage guarantees it provides by an amount
sufficient to meet the increased volume of mortgage guarantees
under the bill and that the authorized amounts will be
appropriated for each fiscal year beginning in 2020.
Background: FHA, within the Department of Housing and Urban
Development (HUD), provides mortgage insurance for the
purchase, refinancing, and rehabilitation of single-family
homes and charges up-front and annual premiums to mortgagors
for that insurance. Those premiums are classified in the budget
as offsetting collections, which reduce spending subject to
appropriation.
To estimate the budgetary effects of such loan guarantees,
CBO uses the methodology specified in the Federal Credit Reform
Act of 1990 (FCRA) and estimates that the FHA mortgage
insurance program will have a subsidy rate of -2.69 percent in
2020. A negative subsidy occurs when the net present value of
all premiums charged for a loan guarantee is greater than the
estimated default costs associated with that guarantee.\1\
---------------------------------------------------------------------------
\1\A present value expresses a flow of past and future income or
payments as a single amount received or paid at a specific time. The
value depends on the rate of interest, known as the discount rate, used
to translate past and future cash flows into current dollars at that
time. Under FCRA, projected future cash flows are discounted to the
present using interest rates on Treasury securities.
---------------------------------------------------------------------------
Under current law, prospective borrowers must have a credit
score of at least 500 (on a scale of 300 to 850) to be eligible
for an FHA-insured mortgage. Such credit scores are typically
calculated using the credit records maintained by the three
nationwide credit-reporting agencies: Equifax, Experian, and
TransUnion. According to the Consumer Financial Protection
Bureau (CFPB), in 2010, about 11 percent of adults in the
United States had no such credit records and about 8 percent
had credit records lacking sufficient information to calculate
a credit score.\2\
---------------------------------------------------------------------------
\2\See Consumer Financial Protection Bureau, Office of Research,
Data Point: Credit Invisibles (May 2015), https://go.usa.gov/xp3F8.
---------------------------------------------------------------------------
For prospective borrowers who lack sufficient credit
histories to calculate a credit score, lenders may assess
creditworthiness through alternative means, including their
performance on rental payments; utility, phone, and cable
television bills; and insurance or tuition payments. HUD
permits lenders that originate FHA-insured mortgages to
establish a borrower's credit history through such alternative
means and has provided guidance to lenders on how to evaluate
nontraditional credit histories. Although some lenders have
developed statistical scoring methods to determine borrowers'
creditworthiness based on such data, other lenders rely on the
judgment of their staff to make those determinations on a case-
by-case basis.
Spending subject to appropriation: CBO estimates that
implementing H.R. 123 would reduce net spending subject to
appropriation by $10 million over the 2020-2024 period.
Pilot program administration: H.R. 123 would authorize the
appropriation of $9 million over the 2020-2024 period for FHA
to administer a pilot program to create and implement an
automated system for FHA lenders to calculate credit scores
using information from alternative data sources. Assuming
appropriation of the authorized amounts, CBO estimates that
implementing that section of the bill would cost $9 million
over the 2020-2024 period.
FHA insurance: Under the bill, FHA would be required to
develop a credit-scoring system and to make it available to FHA
lenders within one year of enactment.
Using information from the Federal Reserve on the number of
applicants who were denied a federally insured mortgage in
2016, the most recent year for which data are available, and
information from the 2015 CFPB report, CBO estimates that over
the 2021-2024 period about 6,000 additional applicants could be
deemed eligible for an FHA loan if lenders used an automated
system that analyzes alternative information to calculate
credit scores.
However, because H.R. 123 would allow FHA to determine the
scope of the pilot program and how to implement it, CBO expects
that the pilot program would be restricted to lenders and
prospective borrowers that meet other qualifications and agree
to participate. Accordingly, CBO estimates that about 3,000
borrowers (or half of the potential additional borrowers) would
receive such a loan under H.R. 123 over the 2020-2024 period.
CBO estimates that those borrowers would increase total FHA
loan volume over that period by $700 million (or less than 0.1
percent of the estimated $1.2 trillion in total FHA volume over
that period).
HUD currently allows lenders to provide FHA-backed loans to
borrowers whose credit scores are determined using alternative
methods and has provided guidance to lenders on how to evaluate
prospective borrowers with nontraditional credit histories.
Furthermore, if HUD determined that providing loans to
prospective borrowers whose credit scores were calculated using
such alternative methods would increase credit risk in the
program, it could modify the fees it charges to those borrowers
to offset any such risk. Accordingly, CBO estimates that the
average subsidy rate for the overall FHA program would remain
unchanged under H.R. 123 because we expect that new borrowers
would be held to the same creditworthiness requirements as
under current law. Therefore, taking into account the estimated
increase in volume of FHA-insured mortgages and the negative
subsidy rate on those mortgages, CBO estimates that
implementing H.R.123 would increase discretionary offsetting
collections (and thus decrease discretionary costs) from the
FHA mortgage insurance program by about $18 million over the
2020-2024 period.
Alternative budgetary treatment: The estimated cost of H.R.
123 depends on the method used to calculate the subsidy rate
for mortgages insured by FHA. Under current law, the budgetary
effects of FHA's mortgage insurance program are measured in the
budget according to the procedures established in FCRA.
However, as required by S. Con. Res. 71, the Concurrent
Resolution on the Budget for Fiscal Year 2018, CBO also has
prepared a cost estimate for H.R. 123 using a fair-value
approach to estimating the budgetary effect on FHA.
The fair-value approach is an alternative to the approach
specified in FCRA. Both approaches rely on the same projections
of future cash flows for guarantee programs, and both account
for the lifetime cost of the new guarantees made in a given
year (including the expected cost of losses net of fees
collected). Fair-value estimates differ from FCRA estimates by
recognizing that the government's assumption of financial risk
has a cost that exceeds the average amount of losses that would
be expected from defaults. The higher financial risk is
reflected in the higher fees private entities charge for
similar guarantees on the basis of market prices. In practice,
the main difference between FCRA and fair-value estimates is
the discount rate used to calculate the present value of
estimated future guarantee costs and receipts. Fair-value
estimates use higher discount rates that incorporate a premium
for market risk.
Using the fair-value approach, CBO estimates that the FHA
mortgage insurance program will have a positive subsidy rate of
2.80 percent in 2020. If that rate were used to implement the
mortgage guarantees the FHA program would have a cost rather
than a savings.\3\ Using the fair-value approach the estimated
increase in FHA loan volume over the 2020-2024 period under
H.R. 123 would increase the cost of FHA's mortgage guarantees
by about $24 million. That estimate of $24 million does not
include the administrative costs necessary to implement the
pilot program, which CBO estimates would total $9 million over
the 2020-2024 period (see Table 1). Therefore, CBO estimates
that, on a fair-value basis, implementing H.R. 123 would cost a
total of $33 million over the 2020-2024 period.
---------------------------------------------------------------------------
\3\See Congressional Budget Office, Fair-Value Estimates of the
Cost of Federal Credit Programs in 2020 (May 2019), https://
www.cbo.gov/publication/55278.
---------------------------------------------------------------------------
Pay-As-You-Go considerations: None.
Increase in long-term deficits: None.
Mandates: None.
Estimate prepared by: Federal Costs: Robert Reese;
Mandates: Rachel Austin.
Estimate reviewed by: Kim P. Cawley, Chief, Natural and
Physical Resources Cost Estimates Unit; H. Samuel Papenfuss,
Deputy Assistant Director for Budget Analysis; Theresa Gullo,
Assistant Director for Budget Analysis.
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 123. However,
clause 3(d)(2)(B) of that rule provides that this requirement
does not apply when the committee has included in its report a
timely submitted cost estimate of the bill prepared by the
Director of the Congressional Budget Office under section 402
of the Congressional Budget Act.
Unfunded Mandate Statement
Pursuant to Section 423 of the Congressional Budget and
Impoundment Control Act (as amended by Section 101(a)(2) of the
Unfunded Mandates Reform Act, Pub. L. 104-4), the Committee
adopts as its own the estimate of federal mandates regarding
H.R. 123, as reported, prepared by the Director of the
Congressional Budget Office.
Advisory Committee
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Application of Law to the Legislative Branch
Pursuant to section 102(b)(3) of the Congressional
Accountability Act, Pub. L. No. 104-1, H.R. 123, as reported,
does not apply to terms and conditions of employment or to
access to public services or accommodations within the
legislative branch.
Earmark Statement
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 123 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as described in clauses 9(e), 9(f), and 9(g) of rule
XXI.
Duplication of Federal Programs
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the
House of Representatives, the Committee states that no
provision of H.R. 123 establishes or reauthorizes a program of
the Federal Government known to be duplicative of another
federal program, a program that was included in any report from
the Government Accountability Office to Congress pursuant to
section 21 of Public Law 111-139, or a program related to a
program identified in the most recent Catalog of Federal
Domestic Assistance.
Changes to Existing Law
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, H.R. 123, as reported, are shown as follows:
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
NATIONAL HOUSING ACT
* * * * * * *
TITLE II--MORTGAGE INSURANCE
* * * * * * *
SEC. 258. PILOT PROGRAM FOR AUTOMATED PROCESS FOR BORROWERS WITHOUT
SUFFICIENT CREDIT HISTORY.
(a) Establishment.--The Secretary shall [carry out] establish
and carry out a pilot program to [establish, and] make
available to mortgagees who elect to participate in the pilot
program, an automated process for providing [alternative]
additional credit rating information for [mortgagors and]
prospective mortgagors under mortgages on 1- to 4-family
residences to be insured under this title who have insufficient
credit histories for determining their creditworthiness and
have opted into the use of additional credit information. Such
[alternative] additional credit rating information may include
rent, utilities, and insurance payment histories, and such
other information as the Secretary considers appropriate.
(b) Goal.--The goal of the pilot program under this section
shall be to examine and evaluate the benefits of using such a
credit scoring model that uses additional data.
[(b)] (c) Scope.--The Secretary may carry out the pilot
program under this section on a limited basis or scope, and may
consider limiting the program to first-time homebuyers. The
pilot program may not be carried out with respect to any
mortgagor or prospective mortgagor under a mortgage the
proceeds of which are used to prepay or pay off an existing
loan secured by the same property.
(d) Additional Credit Information.--The Secretary shall,
after consultation with the Government National Mortgage
Association and not later than one year after the date of the
enactment of this subsection, select one or more commercially
available credit scoring models that will be available under
the pilot and that utilize additional data, as the Secretary
considers appropriate based on the goals of the pilot program.
In selecting the model or models to use, the Secretary shall
consider the criteria under part 1254 of the regulations of the
Director of the Federal Housing Finance Agency (12 C.F.R. Part
1254) to the extent appropriate.
(e) Notification.--
(1) Notice of options.--The Secretary shall develop a
notice for prospective mortgagors, and require
mortgagees to provide such notice to prospective
mortgagors, that informs prospective mortgagors of--
(A) the ability to opt into the use of the
credit scoring model selected for use under the
pilot program;
(B) information on how the pilot program
credit scoring model differs from the FHA's
current credit scoring models, including the
types of additional data that are included in
the pilot program model; and
(C) housing counseling agencies in the area
that are approved by the Department of Housing
and Urban Development.
(2) Comparison of lending options.--The Secretary
shall require mortgagees participating in the pilot
program to provide information to prospective
mortgagors sufficient to allow comparison of the
mortgagor's lending options using the credit scoring
model under the pilot program and using the credit
scoring model then in effect for mortgagors not opting
into the use of the credit scoring model under the
pilot program.
(f) Underwriting Options.--This section may not be construed
to preclude a prospective mortgagor who opts to use an approved
credit scoring model under the pilot program under this
subsection in connection with underwriting for a mortgage
insured under this title from thereafter obtaining a
determination of creditworthiness involved in underwriting for
such mortgage using information other than that provided under
such approved credit scoring model.
(g) Protection of Proprietary Information.--This section may
not be construed to require the disclosure or sharing of any
proprietary information.
(h) Reporting.--
(1) In general.--The Secretary shall submit reports
to the Congress in accordance with paragraph (2) that
provide a detailed evaluation of the effectiveness of
the pilot, including data that shows--
(A) the number of mortgagors who had the
option to opt into using additional credit
information and the number of mortgagors who
opted into using additional credit information;
(B) the total number and percent of
mortgagors who opted into the pilot and were
subsequently approved for a mortgage;
(C) demographic information about mortgagors
who opt into using additional credit
information, compared to demographic
information about mortgagors generally, which
shall include race, ethnicity, marital status,
sex or gender, geographic location regarding
mortgaged properties, and any other information
the Secretary deems appropriate;
(D) whether or not mortgagors with no or thin
credit files benefitted from having this option
and how;
(E) whether or not other borrowers who did
not have thin or no credit files benefitted
from this option and how;
(F) the effectiveness of the additional
credit information in predicting mortgage loan
default;
(G) the rate of participation of mortgagees
in the pilot program;
(H) whether or not the pilot program had an
impact on the Mutual Mortgage Insurance Fund,
in general, and specifically whether it had an
impact on the economic net worth ratio of the
Fund;
(I) whether or not there was sufficient
income from the pilot program to offset the
risk posed to such Fund by the pilot program;
(J) whether the pilot program had an impact
on the ability of other borrowers not
participating in the program to obtain the
products and services of the FHA; and
(K) any other information the Secretary
determines relevant.
(2) Submission.--The Secretary shall submit a report
described in paragraph (1)--
(A) not later than 6 months after the
conclusion of the 2-year period beginning on
the date on which the Secretary begins
accepting the additional credit scores through
the pilot program established by the Secretary
pursuant to this section; and
(B) not later than 1 year after the
conclusion of the 5-year period beginning on
the date of the enactment of the Alternative
Data for Additional Credit FHA Pilot Program
Reauthorization Act.
(3) Report on selection of additional credit model.--
Not later than the conclusion of the 6-month period
that begins upon the conclusion of the one-year period
under subsection (d), the Secretary shall submit to the
Congress a report explaining why the additional credit
scoring model or models selected pursuant to subsection
(d) were selected in lieu of other commercially
available credit scoring models.
(4) Public availability of information.--The
Secretary shall make publicly available in an easily
accessible location on the website of the Department--
(A) each report submitted to the Congress
pursuant to this subsection; and
(B) information about the pilot program,
which shall include an up-to-date listing of
mortgagees participating in the pilot program.
(i) Authority to Limit Participation.--The Secretary may
establish a limitation to cap participation in the pilot
program under this section.
(j) Authorization of Appropriations.--There is authorized to
be appropriated--
(1) $3,000,000 for fiscal year 2020 for establishing
and carrying out the pilot program under this section;
and
(2) $1,500,000 for each of fiscal years 2021 through
2024 for carrying out the pilot program under this
section.
[(c) Limitation.--In any fiscal year, the aggregate number of
mortgages insured pursuant to the automated process established
under this section may not exceed 5 percent of the aggregate
number of mortgages for 1- to 4-family residences insured by
the Secretary under this title during the preceding fiscal
year.]
[(d)] (k) Sunset.--After the expiration of the [5-year period
beginning on the date of the enactment of the Building American
Homeownership Act of 2008] 5-year period beginning on the date
of the enactment of the Alternative Data for Additional Credit
FHA Pilot Program Reauthorization Act, the Secretary may not
enter into any new commitment to insure any mortgage, or newly
insure any mortgage, pursuant to the automated process
established under this section.
* * * * * * *
MINORITY VIEWS
Committee Republicans support efforts to better understand
the use of alternative credit data and how it can benefit
future borrowers who have little or no credit or for borrowers
who are working to improve their credit history.
However, Committee Republicans are concerned that without
proper guardrails in place, H.R. 123, the FHA Additional Credit
Pilot Program Reauthorization Act, would add significant risk
to the Federal Housing Administration's (FHA's) Mutual Mortgage
Insurance Fund (MMIF). Moreover, Committee Republicans are
concerned the additional risk would be passed off in the form
of higher premiums to other, qualified borrowers who are trying
to take the first step toward homeownership.
H.R. 123, as amended, would reauthorize a pilot program
authorized in 2008 but never implemented by FHA. The pilot
program would require FHA to make alternate credit rating
information available to evaluate potential borrowers with thin
or no credit history and who would otherwise not qualify for a
loan.
It is unclear why the Obama Administration FHA never acted
on the authorization in 2008. One possibility is the increased
risk the pilot program would bring at a time that FHA's
portfolio was already unhealthy. Some have argued the Obama
Administration FHA never deployed the pilot because of its
cost. The bill's stated 5-year operational cost of $9 million
negate those arguments. If the Obama Administration deemed the
pilot to be of low-risk and high-value, an FHA with more than
$1 trillion in insurance assets and 1 million newly insured
loans each year could have easily acquired the capital to
deploy it.
Notwithstanding the concerns articulated in 2008, Committee
Republicans are concerned that the risks are even greater for
the program authorized in H.R. 123. Democrats removed any limit
on the size and scope of the program. A hard cap in terms of
size is an essential feature of any ``pilot'' program.
During consideration of the bill, Rep. Roger Williams (R-
TX) offered a commonsense amendment to create a 5 percent
annual cap on the number of loans that could participate in the
pilot program. However, the Williams Amendment was rejected by
the Democrat majority on a party line vote.
In addition, given the amount of risk that this program
could add to the MMIF's balance sheet, there should be tools to
mitigate that added risk besides taxing other qualified
borrowers with increased premiums. Those tools include higher
premiums or down payments for borrowers who use this
alternative credit scoring model.
While Committee Republicans believe in the purpose of FHA
to help first-time and low-income homebuyers access mortgage
credit, this pilot program is a risky experiment in lending to
borrowers who have poor, or no credit history. Moreover, this
program lacks limits to the size and scope and could cause
serious problems to the health of FHA's portfolio. Furthermore,
this risk would be unfairly transferred in the form of
increased costs to other, traditionally qualified borrowers.
A bipartisan product, which would include tools to mitigate
any harm that this program may cause and a cap on its size,
would stand a much better chance at being signed into law. For
these reasons, Committee Republicans oppose the bill.
Patrick T. McHenry.
Bill Posey.
Bill Huizenga.
Ann Wagner.
Scott R. Tipton.
J. French Hill.
Lee M. Zeldin.
Alexander X. Mooney.
Ted Budd.
Trey Hollingsworth.
Max Rose (TN).
Lance Gooden.
William R. Timmons.
Frank D. Lucas.
Blaine Luetkemeyer.
Steve Stivers.
Andy Barr.
Roger Williams.
Tom Emmer.
Barry Loudermilk.
Warren Davidson.
David Kustoff.
Anthony Gonzalez (OH).
Bryan Steil.
Denver Riggleman.
Van Taylor.
[all]