When the Office of the Comptroller of the Currency (OCC) suggested that despite credit scoring's good points, it may create some real problem loans if over-relied upon, Wayne Rushton nodded knowingly. The OCC's senior deputy comptroller for bank supervision policy points to one bank's scoring scrape: "They sampled the credit scores on a particular credit system and one fellow kicked out as being highly deserving of credit," he says. "There was only one problem; he was in a state penitentiary at the time." Things like that, says Rushton, prompted the OCC to remind banks what credit scoring models are for. The problem, adds David Gibbons, deputy comptroller for credit risk, is that credit scoring models aren't always used properly; they're sometimes subject to too many override decisions and sometimes applied to loan pools, like small business loans, that may not be smooth enough to yield to credit scoring approaches. "Some companies are convinced that small business loans are homogeneous to a certain extent and can be scored," he says. "And the models being used for small business have been developed since the last time we had (them); they don't really have (the data) to go back to and test them through a down cycle." The result, says Rushton, is that "you really have to have some human hands somewhere along the line." But too many overrides of the model can also be a problem, says Gibbons. "If you're using a scoring model and you've done your homework as the bulletin (OCC 97-24) suggests, and you're excessively overriding your model. At some point you have to wonder if the model is doing what it was intended to do." -reinbach tfn.com

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