[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]