[Enigma]

In Wake of Foreclosure Crisis, Fair Isaac, Bureaus Eye New Credit Scoring Tools

The Credit Union Journal via NewsEdge :

In response to criticism that FICO scores have not been predictive enough of defaults and foreclosures, Fair Isaac Corp. and the credit bureaus are creating scoring tools specifically for mortgages.

The products, which are not meant to replace the three-digit FICO score, use alternative data sources combined with the score to gauge the risk of default.

Mortgage lenders also are reducing their reliance on FICO scores by emphasizing other consumer data in the underwriting process, the newspaper reported. Several observers told American Banker, an affiliate of Credit Union Journal, that FICO was misapplied by lenders and secondary market participants during the height of the cycle.

“There has to be some reform,” said Todd Geiman, EVP with the mortgage unit at National Bank of Kansas City. “Too many people threw out everything and just looked at the FICO score.”

This year the bureaus and Fair Isaac have introduced at least a half-dozen products aimed not only at mortgage lenders looking to rank borrowers, but also at investors trying to understand loan portfolio risk. For example, Fair Isaac’s Credit Capacity Index forecasts a borrower’s ability to handle incremental debt.

Credit Union Journal SourceMedia - An Investcorp Company

[Pale Rider]

According to FICO and Fannie Mae, a 620 score results in a 3.1% chance of defaulting. Take a good look at that number, which relects a bad credit score according to them. It also tells us that those with that score have a 96.9% chance of NOT defaulting.

Once again FICO and the credit industry are succeeding in deflecting all responsibility for major mistakes and flaws from themselves to the consumer. Time to find some more legal loopholes to beat them at their own game.

[centex]

Originally Posted by Pale Rider

According to FICO and Fannie Mae, a 620 score results in a 3.1% chance of defaulting. Take a good look at that number, which relects a bad credit score according to them. It also tells us that those with that score have a 96.9% chance of NOT defaulting.
.

Let's be brutally honest here though...a 620 is NOT a good score. It really is not a fair-to-middlin' score. Whether it is that low because of utilization or because of derogatory items matters not...it still is not a score that should be worthy of a six-figure purchase.

And, in the current climate, a 3% statistical expectation of default is more risk than many investors are going to want without some sort of premium to recoup some of their investment on the front end. The problem there is that people will whine and snivel if they were asked to pay double-digit interest on their mortgage even though a 10% rate would make the sale of the mortgage more palatable to investors.

[jlynn]

a 620 score can also be a reflection of a thin or young file with no derogs and no over-utilization. Another reason a 3 digit number should not be THE deciding factor in any loan process.

[Pale Rider]

My point was that 97% of the people are punished for the actions of the 3%. It doesn't matter what the score is, or how it got that low. They are assigning high risk based on the score without taking into consideration WHY my score is low. On several occasions I lost 30-40 points after a NEGATIVE account was removed. I know how and why that is, but I still say it is a scam. The system is highly flawed.

Similar to the insurance scams that use FICO to determine my rate. My score is low due to utilization. I pay higher rates for insurance for supposedly being a high risk due to low FICO. I have not had a ticket or wreck in 15 years. I should be judged on my drivng record, not because of the color of my car, or because it raining on an odd numbered day in an even numbered month in Istanbul.

So they are going to tweak the scores some more to make up for the banks mistakes, which they admit in the above article. Even though they screwed up the "consumers have to be taught a lesson and pay more so we can get rich again".

[spinn]

The bigger crime.....even worse than the exaggeration of premiums taken for a 3% risk, is that these mortgages are being bailed out in the same way Bear Stearns was:

"The Fed’s decision to act — temporarily at least — as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed’s lending powers since the 1930s.

Bear Stearns was eventually taken over by JPMorgan Chase & Co., with the Fed providing $28.82 billion in financial backing." http://www.msnbc.msn.com/id/25582478

I can not even begin to understand this, but it seems like the Fed somehow guaranteeing loans or risk with public money, giving the mutants that made all these bad loans more incentive to repeat their mistakes.

Congress really does work for the Banks.

[spinn]

Originally Posted by Pale Rider

So they are going to tweak the scores some more to make up for the banks mistakes, which they admit in the above article.

These were not mistakes. The banks were taking risks with other peoples money. If these risks worked out and they did for a while, they made billions. If they didnt work out, they lost nothing other than their jobs, which they never should of had. And then they got a seven figure golden parachute.

This was intentional. The market simply exploited a flawed system and Congress continues to pretend it was a "mistake".

[Pale Rider]

I know nothing of the conspiracy you talk about, but even if true it still shows this was not a consumer problem. Yet they attempt to fix the blame on consumers and come up with a "solution" that does not address the real issue.

[Enigma]

For a good over view on the whole mess, listen to this:

Is Wall Street At Fault For Mortgage Meltdown? : NPR

[spinn]

Originally Posted by Pale Rider

I know nothing of the conspiracy you talk about, but even if true it still shows this was not a consumer problem. Yet they attempt to fix the blame on consumers and come up with a "solution" that does not address the real issue.

It was not a conspiracy per se. It is the same on Wall Street and in hedge funds.

These banks get money from the public and can take on inordinate but measurable risk.

It is like if someone gives you $100. You get to keep anything above $120 if you make a profit. If you lose that person loses $100 but you lose nothing. If you take on some risky investment that may make you $1000, you get to keep $900.

[xYBDx]

Sounds crazy