Credit scoring may be all the rage among the lenders and the mortgage agencies, but Wall Street investors are taking a wait-and-see attitude, according to Stephen C. Rudner, vice president, Morgan Stanley & Co.
There are so many proprietary scoring systems in use, Mr. Rudner said, that investors are not sure what to make of scores from each. Moreover, "No one will tell you how their model works, because it's proprietary," he said.
That means investors have to study the performance of loans scored by the various systems before they can tell how much stock to put in them, Mr. Rudner said.
How long will investors study different scoring systems? Mr. Rudner couldn't say whether even a five-year study would be conclusive.
In any case, creditworthiness, as measured by pure credit bureau scores, is only one of several factors that investors consider when they buy mortgage-backed securities, Mr. Rudner said.
Investor losses in the event of default are a function of the borrower's loan-to-value ratio and whether home prices have gone up or down, he said. While those variables may be factored into the more complicated mortgage scores, Mr. Rudner said he did not foresee that there would ever be standardized mortgage scores.
"If everybody had the same view of where property values would go, there would be no real estate market in the United States," Mr. Rudner said.
That's not to say Wall Street doesn't see any uses for credit scores.
One place scores would be useful, Mr. Rudner said, is with products traditionally considered riskier than first mortgages, such as home equity lines of credit. There, new borrower information could supplement risk evaluations based on product type, he said.
For example, "If the borrowers all have high credit scores, you know these aren't second-lien loans to people who can barely afford them, but to good payers," Mr. Rudner said. That might lead credit rating agencies to require a smaller subordinated piece, he said.
Norwest Mortgage Inc.'s newly formed Norwest Asset Securities Corp., Frederick, Md., has sold its first bundle of mortgage securities, a $605 million issue backed by 20-year and 30-year home loans. Lead manager for the underwriting syndicate is Lehman Brothers Inc., New York.
The backing includes loans originated by Norwest and by Prudential Home Mortgage Inc., which Norwest acquired in May. Most of the loans are jumbos - those that exceed the Freddie and Fannie ceiling of $207,000.