OVERLAND PARK, Kan. - 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. (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
