FAR_13.5_JA_for_TOTAL_Scorecard_Revalidation_2024_Redacted.pdf

Options to analyze the loan performance from the SFHD programs using the loans in that portfolio was included as part of the scope. The goal is to determine if the FHA TOTAL scorecard would perform adequately to predict the performance of the SFHD loans and if so, determine the appropriate “cut-point.” The main tasks are:

Project Management o Kickoff Meeting o Management Plan o Monthly Progress Reports

Building and Managing Samples Scorecard Performance Review and Analysis Final Prep and Delivery of Scorecard Data Files & Docs Implementation, Update, and Support

4. The statutory authority permitting other than full and open competition.

41 U.S.C. § 1901 - Simplified Acquisition Procedures up to $7.5 million, as authorized by FAR 13.500(a) and implemented by FAR 13.501(a) per USDA and RD templates.

5. A statement demonstrating the unique qualifications of the proposed contractor or the nature of the action requiring the use of the authority.

The TOTAL scorecard is a statistically derived decision engine maintained by FHA that works in conjunction with its Automated Underwriting Systems (AUS) platforms to identify FHA loan applications, that in addition to the AUS review, must pass a manual borrower credit underwriting review prior to acceptance for FHA insurance. After a previous analysis and validation of the TOTAL scorecard, SFHD was granted access to TOTAL scorecard via the Guaranteed Underwriting System using a modified version of TOTAL scorecard where “cut-points” were adjusted based on the performance of the SFHD portfolio.

FHA’s confidential TOTAL scorecard was developed under an FHA contract and has been employed in the FHA credit underwriting process since May 2004 and used by SFHD since 2006.

The scorecard was built using confidential FHA borrower credit data that was paired with corresponding electronically collected loan application data related to subsequent loan performance data. Because of the proprietary nature of the scorecard algorithm, FHA will not allow other contractors access to the agorithm except for IFE.

The FHA competitively awarded the contract to IFE on November 17, 2022, to analyze the scorecard performance and maintain changes to the algorithm. During the performance of the contract, IFE was granted the TOTAL Scorecard rights and technical data rights. These rights will not be provided to another vendor because they were already competed for, and FHA has Unlimited Rights to these rights maintaining control over them. Developing and competing for a new solution would result in a substantial duplication of costs, as we already utilize FHA Total Scorecard version 2 and is integrated in our underwriting tool. Additionally, we would face significant delays due to technological and algorithm changes, rendering our underwriting tool obsolete given its reliance on current credit bureaus data and TOTAL scorecard integration. IFE has thorough access and knowledge to the proprietary algorithm and has extensive experience on how the algorithm works. Even if RHS was allowed to solicit a contract with an independent contractor to develop an algorithm similar to TOTAL scorecard for RHS loans, the USDA would incur a substantial duplication of cost and significant delays that would not be expected to be recovered through competition.

6. A description of efforts made to ensure offers are solicited from as many potential sources as is practicable.

In accordance with FAR 13.501(a)(iii) this Sole Source Justification under Simplified Procedures for Certain Commercial Items (FAR 13.5) will be posted within 14 days after contract award in the System for Award Management (SAM) website known as www.SAM.gov.

7. A determination by the Contracting Officer that the anticipated cost to the Government will be fair and reasonable.

The proposed prices will be compared against the independent government cost estimate and historical pricing paid for these services. The Contracting Officer will determine if the price is fair and reasonable pursuant to FAR 13.106-3(a) prior to award.

8. A description of the market research conducted and the results or a statement of the reason Market Research was not conducted.

Market research was conducted for this acquisition; however, the FHA tightly controls access to the proprietary algorithm to the TOTAL scorecard and IFE is the only entity with the requisite access and knowledge to operate it. FHA will not grant access to another contractor for purpose of re-validating the TOTAL scorecard for the SFHD programs.

9. Any other facts supporting the use of other than full and open competition.

TOTAL scorecard is a tool developed, operated, and maintained by FHA and it is used to evaluate mortgage loan applications for FHA insurance. It assesses the credit risk associated with these applications based on various factors such as credit history, income, debt-to-income ratio, and the borrower’s ability to make mortgage payments. The scorecard helps streamline the FHA underwriting process by automating the evaluation of loan applications and determining whether they meet the FHA’s standards for insurance eligibility.

In 2006, RHS and FHA entered into an agreement to allow RHS to use the FHA TOTAL Scorecard in the Guaranteed Underwriting System to automate the credit and capacity analysis of SFHGLP applications using the TOTAL algorithm with “cut-points” based on the performance of the RHS SFHGLP loan portfolio. A revalidation of the scorecard is required to ensure the scorecard is still performing adequately for the SFHGLP portfolio.

Software releases play a crucial role in maintaining the quality, security, and relevance of in a rapidly technological landscape for the following reasons:

New features: introduces new features and functionalities based on user feedback, market trends, and technological advances which keep the software relevant.

Improvements: software releases contain performance enhancements that improve overall stability and functionality.

Security updates: releases often address security vulnerabilities, protecting users and their data from potential threats.

Compatibility: releases ensure compatibility with new operating systems, devices, and third-party integrations, preventing compatibility issues and enhancing user experience.

10. A listing of the sources, if any, that expressed a written interest in the acquisition.

As stated under section 6, this sole source justification will be posted to SAM.gov within 14 days after contract award.

11. A statement of actions, if any, the agency may take to remove or overcome any barriers to competition if subsequent acquisitions are anticipated.

This effort will depend on whether HUD/FHA competes the TOTAL Scorecard program in the near future. In the meantime, and as stated under section 6, this sole source justification will be posted to SAM.gov within 14 days after contract award.

Certifications & Approvals

Supporting data which form the basis for and included in this justification are certified accurate and complete.

Dean A Daetwyler Director, System Implementation & Management Div., SFHGLP, RHS

The information contained in this Justification for Other Than Full and Open Competition is certified accurate and complete to the best of my knowledge and belief.

Elyse Schnorr Contracting Officer RAD-A

Additional Reviews & Approvals

Advocate for competition for the procuring activity (if over $750,000). I have reviewed this justification and find it to be accurate and complete to the best of my knowledge and belief.

Therefore, unless additional approvals are required as prescribed below, as advocate for competition for the procuring activity, I hereby approve this justification.

Lori Lloyd, Mission Area Senior Contracting Official Chief, Procurement Operations Division USDA Rural Development Advocate for Competition

Digitally signed by DEAN DAETWYLER Date: 2024.07.09 08:56:01 -04'00'

ELYSE SCHNORR Digitally signed by ELYSE SCHNORR Date: 2024.06.26 11:01:50 -06'00'

Paul Schiele (Acting) Director

Digitally signed by Paul Schiele (Acting) Director Date: 2024.07.09 13:44:37 -04'00'