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onsidering the significant impact of Covid-19 in the world’s economy, including the housing markets, countries are now working relentlessly to ensure that their economies are back on their feet. The virus mostly hits the US, and it is still battling with it to date. Prices of properties in the United States have been significantly affected by this global pandemic, and something has to be done to return things to normal. It is on this basis that The Federal Housing Finance Agency has finally decided to validate and approve classic FICO for Freddie Mac and Fannie Mae. Such approval means that Fannie Mae and Freddie Mac can now use the classic FICO credit score model.
FHA DECISION TO APPROV FREDDIE MAC AND FANNIE THAT DECISION WEIGH ON
There’s a provision in the regulatory reform law S. 2155 that mandated evaluating a new credit score model. Therefore, the approval is constitutional. With this approval, Fannie and Freddie are now allowed to continue providing every necessary support required by the mortgage market. It’ll also help to access other modern credit score models. The question now is, how much does that decision weigh on the housing market? Will it be able to make a significant impact or not? To answer this question, it is better first to understand the role of Fannie Mae and Freddie Mac in the housing market. When you hear Fannie Mae and Freddie Mac, they refer to two federally-backed home mortgage companies in the United States. The US Congress created these companies to serve a vast number of purposes in the US housing market. They buy and guarantee mortgages from lenders. They hold the purchased mortgages with them in their portfolio. They also transform the loan into mortgage-backed securities (MBS), which will then be sold to interested investors. Fannie Mae and Freddie Mac play crucial roles in America’s housing finance system. Their primary goal is to provide stability and liquidity in the mortgage market. They also ensure that properties are well regulated and affordable. They provide liquidity to institutions that offer loans to finance housing. Such
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THE POWER IS NOW MAGAZINE | DECEMBER 2020
