Lending to minorities has recently moved to center stage in the mortgage industry-and so have the perennial questions about the fairness of credit scoring.

As the Department of Housing and Urban Development and the Mortgage Bankers Association emphasize minority lending, some observers are questioning the industry's reliance on Fair, Isaac & Co.'s credit bureau scores.

Matthew Lee of Inner City Press/Community on the Move, an activist group based in Bronx, N.Y., said the formulaic approach to credit evaluation may make scoring biased.

"Minority lending has gone down over the last two years as credit scoring has become more prevalent," Mr. Lee said. Credit "scoring looks at mainstream, middle-class where getting a credit card and a car loan is normal. There are lots of areas in this country where that simply isn't the case."

But David Shellenberger, a product manager at Fair, Isaac, said the criticism is unfair.

Fair, Isaac credit scores use credit bureau information to determine the likelihood of a borrower's repaying a loan, he said.

The company's scores are "a measuring stick of risk. Before that, it was a warm and fuzzy evaluation of credit, but we know you don't have to be rich and white to pay your bills on time," Mr. Shellenberger said. "We only look at what credit obligations you have and how well you've been paying them off and whether or not you've been actively seeking a lot of new credit."

Mr. Shellenberger said income, race, gender, length of employment, and whether the customer rents or owns a home are not even part of the credit- scoring model. He said he understood why some might be quick to call the Fair, Isaac method unfair.

"Give me a room full of underwriters, and I'll give you a room full of different opinions of creditworthiness," Mr. Shellenberger said. "It's typically been a very subjective process. Credit bureau scores provide an objective, consistent means of arriving at scores."

Mr. Lee said lenders should consider factors other than credit history, such as a long history of paying rent on time, to determine creditworthiness.

Fair, Isaac became popular in the mortgage industry in July 1995 when Freddie Mac and Fannie Mae both recommended using its scoring model.

These endorsements were criticized by a number of industry leaders, including Countrywide Credit Industries chairman Angelo Mozilo who at the time warned of "horrendous discrimination" if scoring were the primary tool for approving or rejecting a home loan.

Mr. Shellenberger maintained that people are evaluated according to individual circumstances-even if different ones from those suggested by Mr. Lee.

He said a higher score could be achieved if the customer had paid bills on time, exhibited conservative use of credit, had a longer credit history, and used a mix of revolving and installment credit rather than one secured line.

"By their nature credit scores are compensatory. If you fall short in one area, it doesn't mean your score is trashed," Mr. Shellenberger said.

Mr. Lee said heavy reliance on credit history and past performance is precisely the problem. "There are a lot of people who don't have bad credit, they just don't have much credit history," he said.

Mr. Shellenberger said it is not easy to clean up a person's credit file to meet the secondary market's rigid guidelines.

"Credit scores don't lend themselves to being altered, and the question is, 'Should people be trying to boost scores anyway?'" Mr. Shellenberger said. "You can't get a loan on a handshake today like my grandfather used to, and that makes some people angry."

Scott Van Dellen, senior vice president of Countrywide's mortgage unit in Calabasas, Calif., warned against focusing on credit scores.

"The real importance is getting the loan. Credit scoring is only one of the tools we use," Mr. Van Dellen said. "We let local branches make the underwriting decisions because they are right there and can decide based on that community."

Mr. Van Dellen said Fair, Isaac scoring could help reduce lenders' costs because it is easier to approve people who score well. "It is the ones that are not above that magic score that we need to work with by looking for explainable problems," Mr. Van Dellen said. "That's what a score won't do for you."

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