Mortgage brokers are beginning to accept credit scoring as a fact of life.
Speakers at the annual National Association of Mortgage Brokers convention in Atlanta this week said they recognize the usefulness of credit scoring models, but some warned against an overreliance on them.
Fair, Isaac Co., San Rafael, Calif., pioneered the models, which provide the basis for the widely used "Fico" scores, named after the firm.
Generally, a borrower with a Fico score of 620 or more out of a possible 800 is deemed acceptable for a mortgage. But some speakers urged incorporating other factors in the review.
Ralph S. Mozilo, executive vice president of wholesale builder sales for Countrywide Credit Industries Inc., said mortgage bankers have no choice but to accept credit scoring. Both Fannie Mae and Freddie Mac have supported such models, he said.
Mr. Mozilo-the brother of Countrywide Home Loan chief executive Angelo Mozilo-admitted adamantly opposing the concept when it surfaced but said he has softened his stance.
"We need to look at Fico not as an obstacle but as a tool," Mr. Mozilo told the brokers.
He expressed concern that the industry is moving too fast in accepting credit scores as a be-all and end-all in loan approvals. He warned that some lawyers could initiate class actions charging that the use of credit scores is discriminatory.
"We're burdened with enough lawsuits already," Mr. Mozilo said, referring to the spate of class actions regarding brokers' collection of yield-spread premiums.
A more troublesome issue, he added, is how credit scores will lead to increased risk-based pricing. Lenders will have to charge higher rates to consumers with low credit scores who are seeking loans with low down payments because the agencies will charge a higher fee to guarantee them.
Mr. Mozilo said it should be the agencies' responsibility, not that of lenders or brokers, to educate consumers about how credit scoring could affect loan prices.
Connie Ferran, director of policy management at Freddie Mac, said the audience for the credit scoring panel at this year's conference was significantly less hostile than the crowd of brokers she addressed at last year's conference in Reno.
Still, in the question-and-answer session after the panel discussion, most questions were directed at Ms. Ferran.
She conceded that credit scores can contain inaccurate information and that the user often gets no indication why a borrower has a low score. She said it is up to the broker to determine whether the score paints an accurate picture of a borrower's credit-worthiness.
"In the end, the borrower must be found to have an acceptable credit reputation," Ms. Ferran said.
Susan F. Tobin, vice president of risk management for MGIC Investment Corp., the nation's largest mortgage insurer, said credit scores have been a valuable predictor of defaults. Ms. Tobin said her company started using Fico credit scores in 1995.
But Ms. Tobin said lenders need to look at more than credit scores to get an accurate picture of a borrower.
MGIC, PMI Group, CMAC Investment Corp., and other insurers offer mortgage models that factor in credit scores, loan-to-value ratios, and economic data about where the borrower lives.
