lenders see the process in action and to counter negative perceptions that are dogging it. In hotel meeting rooms on the East and West coasts, representatives of the San Francisco credit research firm are defusing assertions that credit scoring can lead to discrimination. "There are a lot of fallacies in the industry about what credit scoring is and how it can be used," said Suzanne Vesely, a Fair, Isaac customer service director who conducted a three-hour class in New York last week. The scoring system uses credit bureau information to create a yardstick against which lenders can consider prospective borrowers. The yardstick, however, may not be long enough for all types of borrowers, some seminar attendees said. Ms. Vesely said the credit scoring system avoids overt discrimination by looking only at financial data - not a person's age, race, or gender. But she did acknowledge that there is a chance of inadvertent discrimination, because credit reports do not track certain financial arrangements. For example, she said, many members of lower-income groups have perfectly good credit histories, though these records are based on how they repay loans from family members or friends. Also, many consumers establish credit through furniture rental agreements and utility bill payments, measures that do not show up in bureau reports. Credit scoring is also criticized by some lenders who feel the procedure can backfire on them. Fannie Mae and Freddie Mac - which both support the use of credit scores - could apply the scores to force buybacks of loans, some lenders have said. Both agencies deny the assertion, saying they do not use credit scoring as the sole basis for requiring buybacks of loans. Ms. Vesely positioned credit scoring as one tool - not the only tool - that lenders can use to assess borrowers' ability to pay mortgage loans. Fair, Isaac is among a handful of companies that have developed scoring systems, which have long been applied to other areas of consumer finance. Fair, Isaac receives a royalty on the 25 cents to 75 cents per report that lenders pay to credit agencies that work up the scores. Ms. Vesely told the class of 35 mortgage industry representatives in New York that credit scoring has applications beyond helping to determine borrower risk. For instance, scores can help lenders segment their borrowers to develop more specialized collection and service strategies, she said. Lenders can also use scores to look at the quality of borrowers that individual brokers are bringing in. And, scores could serve as a model to determine prices of servicing portfolios that lenders want to sell or acquire, she said. Industry observers are betting that practical applications like those Ms. Vesely mentioned will beat out remaining opposition. "The idea of credit scoring is really taking hold," said Frank Raiter, managing director of structured finance at Standard & Poor's Corp., New York. "People are more accepting of it as the future direction" of credit evaluation, he said.

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