Since the mortgage crisis, many media articles have been written about the overlays that lenders impose on top of the minimum credit quality standards established by Fannie Mae, Freddie Mac and HUD. Overlays are put in place because lenders, responsible for origination decisions, may not feel the criteria are strict... Continue reading

My colleague Frederic Huynh recently posted that mortgage short sales continue to represent high credit risk in our FICO® Score algorithm. Some readers have responded that our predictive science may be a tad too rigid, which naturally begs the question: Are they right? They point out that starting in November,... Continue reading

It's official... the term "underwater"—as applied to a mortgage loan—has made this year’s list of new words added to the Merriam Webster Dictionary. It not only reflects a mainstream recognition of this unfortunate trend, but is also sobering reminder of today’s economic reality: homeowners’ equity has been halved since 2005,... Continue reading

When you stop to think about it, the term “alternative credit data” is a catch-all phrase to describe data that is not currently reported on mainstream credit reports. But what, in reality, is alternative about it? For millions of people, it may not be alternative data but the only credit... Continue reading

I previously blogged about how a consumer’s FICO® Score may vary from one CRA to another, due mostly to differences in data reported to each of the credit reporting agencies. This begs the question: when pulling scores from more than one CRA, which should be used for credit decisioning? The... Continue reading

I recently had the pleasure of speaking at the Philadelphia Federal Reserve Bank’s Community Development Studies and Education Department’s conference “The Impact of Workout Options on Borrower’s Credit Reports and Scores.” The conference was well attended by regulators, lenders and consumer credit and housing counselors. FICO’s research on the score... Continue reading

As I've mentioned previously on this blog, strategic defaulters have a unique set of characteristics not found among other defaulters. That means traditional account management and collections methods are less effective with them. So what's a mortgage servicer to do? Segment populations based on the dual dimensions of credit risk... Continue reading

A recent FICO data analysis found more than six million U.S. homeowners have a current-loan-to-value ratio of 120 or higher, meaning they are at least 20 percent underwater on their mortgages. Based on recent data from Fannie Mae, these homeowners are more than twice as likely as other borrowers to... Continue reading

Strategic defaults and the changing consumer stigma around defaulting on a mortgage make for an interesting ethical debate, argued in media outlets ranging from the Chicago Tribune to The PBS NewsHour. But ethics aside, let's not lose sight that strategic defaults have negative consequences for consumers, servicers and investors. Consumers... Continue reading

The incidence of strategic default is on the rise. But before mortgage servicers can take action, they first must be able to identify strategic defaulters. Standard credit risk scores aren't sensitive to the quite different characteristics of these voluntary strategic defaulters, whose behavior is driven by incentive to pay rather... Continue reading

Accurately predicting strategic default risk remains a big challenge for mortgage servicers. Because strategic defaulters behave differently from traditional mortgage defaulters, it's quite difficult for servicers to identify consumers with the greatest potential to strategically default. And after all, you can't predict what you can't measure. FICO recently conducted research... Continue reading

How much impact does a short sale have on FICO® Scores? How about a foreclosure? Since I frequently hear these questions from clients and others, I thought I’d share new FICO research that sheds light on this very subject. The FICO study simulated various types of mortgage delinquencies on three... Continue reading

Recently, Zillow.com questioned the tight loan requirements now in vogue among mortgage lenders. The company, an online marketplace where borrowers shop for mortgage rates and loans, says the tougher criteria "keeps a cap on housing demand, which is important for the greater housing market recovery." Certainly no one wants a... Continue reading

It’s a common belief among lenders and news pundits that home price depreciation (HPD) is a top predictor of consumer repayment risk—perhaps even more so than a FICO® Score. The argument is that in today’s market, declining HPD must be affecting consumer risk behaviors. Many point to the growing number... Continue reading

As noted in last Friday’s New York Times article, the well-intended Making Home Affordable Program that promised to help millions of borrowers is falling well short of that goal. The latest figures show that a total of 422,000 borrowers have been converted into permanent modifications, while 616,000 trial modifications have... Continue reading

There appears to be quite a bit of confusion with consumers and mortgage professionals about how FICO® Scores consider and treat the reporting of a mortgage related short sale. In fact, I have seen and heard it be claimed that a short sale is not considered negative by the FICO... Continue reading