Wednesday, January 3, 2018

A Fight Over the Credit Score that Lenders Use for Your Mortgage

from: The Wall Street Journal:

Banks and rival lenders are butting heads over the credit scores used to decide millions of mortgage requests by U.S. home buyers.
Now, a federal agency is weighing whether to step into the fight, which revolves around a longtime requirement for lenders who sell mortgages to Fannie Mae and Freddie Mac to gauge most borrowers using FICO scores. The Federal Housing Finance Agency's ultimate decision could have wide-reaching ramifications for the mortgage market and home buyers across the U.S.
Many nonbank lenders, which in some recent quarters have accounted for more than half of the mortgage dollars issued in the U.S., want the ability to use a credit score provided by a company owned by credit-reporting firms Equifax Inc., Experian PLC and TransUnion. These lenders argue the alternative score would open the mortgage market to a greater number of people and lead to more mortgage approvals, helping to boost home sales and the economy.
Banks generally want to stick with the current system that uses FICO scores, which have been around for decades and are created by Fair Isaac Corp. Ditching the status quo, they say, could lead to an increase in consumers with riskier credit profiles getting mortgages and a subsequent rise in defaults.

The FHFA, which oversees Fannie and Freddie, is weighing whether to change the requirement to allow for the use of another credit-scoring system. In late December, the agency asked lenders and others for formal input on the issue.
In doing so, the FHFA acknowledged concerns about a "race to the bottom" where credit-scoring systems would compete to offer metrics that make the most loans rather than aspire to be the most reliable.
Credit scores help determine who gets a mortgage and on what terms. They played a role in the last housing boom and bust as lenders lowered credit-score requirements, extending hundreds of billions of dollars of mortgages to subprime borrowers.
After the financial crisis, lenders tightened requirements for potential home buyers. As part of this, they required higher credit scores, making it more difficult for borrowers with spotty credit histories to qualify for a mortgage.
That is why some lenders, mostly nonbank firms, want a change in the kind of scores that can be used. They would like to increase mortgage volume by expanding the pool of borrowers.
These lenders view FICO scores as an impediment since they tend to be more conservative than alternatives.
Nearly half of mortgage dollars made in the U.S. go through Fannie and Freddie, according to Inside Mortgage Finance, so their requirements have huge sway over the mortgage market.

Nonbank lenders argue the current system shuts out borrowers who don't use credit either out of personal choice or because they went through a bankruptcy or foreclosure. That is where VantageScore Solutions LLC, the scoring firm that Experian, Equifax and TransUnion launched in 2006, says it can step in.
The company says it can assign a credit score to about 30 million more consumers than FICO. Roughly 7.6 million of those consumers would potentially be eligible for a Fannie or Freddie mortgage, VantageScore says.
VantageScore, for instance, says it will assign credit scores to consumers if they have a credit card or a loan for as little as one month. FICO requires six months. Separately, FICO creates scores for consumers as long as lenders or other entities update information on their credit reports within the last six months. VantageScore says it will go further back than that.
Banks aren't convinced, even if some big ones have begun to experiment with VantageScore for small pools of applicants whose FICO scores aren't high enough for a mortgage approval. "We've got so much experience using the system we're using now," said Gerard Cuddy, CEO of Beneficial Bancorp Inc., a Philadelphia community bank.

The banks' trade group, the American Bankers Association, says the current system allows for strong underwriting standards. Introducing a new scoring model could put that at risk, said Joe Pigg, senior vice president of mortgage finance at the ABA.
It also could open up mortgage lenders to legal liability, the group says. One feared scenario: If one scoring model is found to approve some borrowers, banks could be accused by regulators of discriminating if they use the other model, Mr. Pigg added.
Nonbank lenders counter that the current system is too rigid and unfairly excludes deserving borrowers. Sanjiv Das, CEO of a major nonbank lender, Caliber Home Loans Inc., said VantageScore could open up homeownership to customers including millennials who don't have a credit history because of their age.
"I strongly believe that a large number of customers are being excluded because of the slavish reliance on FICO," Mr. Das said.
Mat Ishbia, CEO of another major nonbank lender, United Wholesale Mortgage, said he was enthusiastic about a possible change. "Doing something just because you've always done it that way isn't a good enough reason," Mr. Ishbia said.
Both sides agree that Fannie and Freddie's credit-score requirements need an update, partly because lenders using credit scores must employ an old version of the FICO score.
But the FHFA appears to have doubts about adding a new credit score into the mix. When asked during a congressional hearing in October about new credit-scoring models that can assign scores to people with limited credit histories, FHFA's Director Mel Watt said, "The notion that there would be substantially more people credit scored and that would increase access if we had competition is probably exaggerated."
The FHFA has several options as it weighs the debate, including: requiring lenders to check credit scores either from FICO or VantageScore; requiring lenders to check both; or allowing lenders to choose between the two scores.
Not all nonbank lenders are urging change. Stanley Middleman, CEO of the large nonbank lender Freedom Mortgage Corp., supports the continued use of FICO, partly because he doesn't see the point of adapting a whole new system.
"I don't think people are getting boxed out of homeownership," Mr. Middleman said. "And I don't feel like we're guilty of something by asking people to have a credit history."
Write to AnnaMaria Andriotis at and Christina Rexrode at
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Friday, December 8, 2017

Business Growth Workshop "Raising Capital For Your Business"

They all turn out great, but this one is different than all of my previous events. The upcoming Business Growth Workshop is getting promoted by SKY4 in Hampton, so it is getting massive TV exposure. 

Also, we look forward to our new segment: "Money Mondays" which will be shown once an hour on SKY4 - On Monday's of course! Tune in or view from their website:  

Check the CRA Facebook Page on Monday for pictures of this event.

Robert's Next Presentation for the SBA and SCORE Richmond

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Friday, October 27, 2017

How Do Lenders Test The Performance of Credit Scoring Models?

Published by VantageScore Oct 2017:

Credit scores have been a ubiquitous and valuable component of the underwriting process for decades. Credit bureau risk scoring models have been available since the late 1980s and have been used for almost three decades by credit card issuers and auto lenders. Further, it’s been almost 20 years since both Fannie Mae and Freddie Mac endorsed the use of credit scores in their respective automated underwriting systems, known as Desktop Underwriter and Loan Prospector.

The measure of a good credit score model is its ability to rank order. This means that the model effectively identifies those who will remain current on their payments versus those who will not.
So-called “generic credit scoring models” are built using millions of credit files to represent the enormous number of patterns of credit management and payment behaviors for a set of products during a specific time frame and economic condition. As long as those patterns and economic conditions remain fairly stable, the model will continue to rank order as well as when it was first developed.
However, when economic conditions change dramatically (i.e., as they did during the recession), models deteriorate and fail to rank order as well.
For a lender, failing to rank order means consumers who will ultimately default (i.e., fall 90 days or more past due) receive high enough scores to result in credit and loan approvals. In the end, lenders experience higher losses, causing their businesses to be less profitable.
A core responsibility for credit score model developers and users is to validate their models in order to assess whether the models are still performing strongly
For the developer, these validation procedures should assess whether the scoring model effectively rank orders populations and key subpopulations, whether the model has implicit bias that could cause a disparate impact, and whether scores reflect the appropriate level of risk.
A substantial deterioration in the performance of any of these tests, the availability of newly developed data or modeling techniques that could materially improve a model’s predictive performance or ability to score more people should cause the developer to consider developing a new model. To aid lenders and regulators, VantageScore Solutions transparently posts the results of its validations publicly on our website.
Similarly, model users – such as credit and risk functions within lending institutions – should periodically consider their own validation processes. These processes, as outlined in the Office of the Comptroller of the Currency’s (OCC’s) 2011-12 guidelines, should be implemented to determine how effectively the scoring model they are using identifies and measures the risk of their lending strategy on their particular customer base.
Typically, when lenders validate their incumbent scoring model, they also evaluate a number of “challenger” scoring models to determine whether more effective risk management tools are available than the one being used. In the event that a challenger model is more predictive or scores a larger population of consumers with equivalent accuracy, the lender will begin a process of replacing the incumbent model with the new model.
This can be an involved process, requiring redevelopment of strategies with new score cutoffs, rebuilding internal models and decision processes, coordinating and aligning reason codes, as well as initiating thorough audit and compliance reviews. Ultimately, the cost of converting to the new model must be offset by the opportunity to enhance profitability through loss reduction and customer revenue.
Quite interestingly, there is a substantial yet generally invisible benefit of these ongoing validation exercises. Today, as a lesson learned through the recession, credit scores are now often tested on an almost continual basis to determine their effectiveness. As soon as a score fails to deliver sufficient value, it is replaced by newer models that leverage more advanced credit data and sophisticated modeling techniques, which are more representative of the current credit environment.
As such, the industry standard for superior predictive performance continues to improve as the competition for better predictive performance and a larger, scoreable population intensifies with the introduction of each new model.
The latest validation results for the VantageScore credit score models can be found at:

Equifax Reveald Huge Data Breach. I cought this the minute the news broke. 

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Saturday, October 7, 2017

It Now Appears That Equifax Was Punishing Chapter 13 Bankruptcy Filers

While its competitors, TransUnion and Experian, placed a flag on such histories for seven years, Equifax left it on the reports of Chapter 13 filers who failed to complete their bankruptcy plans for 10.
After ProPublica asked about the difference in its policy, the company said it now leaves the flag on for seven years, but refused to say when and why the change was made.
The consequences of Equifax’s harsher policy were likely life-changing for some unlucky people. As Experian warns consumers on it's website: “having a bankruptcy in your credit history will seriously affect your ability to obtain credit for as long as it remains on your report. It can also affect your ability to qualify for things like an apartment, utilities, and even employment. Even car insurance rates may be affected.” Without knowing why, consumers could have been turned down for apartments because landlords checked their Equifax report rather than those from Experian or TransUnion.
Why Equifax’s policy was different is unclear and the company would not address it. But that such a discrepancy had gone unnoticed and unaddressed for so long underscores how lightly regulated the industry is.
ProPublica contacted all of the major credit agencies earlier this year as part of our ongoing series on consumer bankruptcy. The policies of TransUnion and Experian were similar: People who filed under Chapter 7, which wipes out most debts, would have a flag on their report for 10 years; those who filed under Chapter 13, which usually involves five years of payments before debts are forgiven, would have a flag for seven.
Equifax had the same Chapter 7 policy. But the company had a key difference in its policy for Chapter 13 filers: Those who were unable to complete their five years of payments and had their cases dismissed were saddled with a flag for three additional years.
This difference had the potential for widespread impact. About half of Chapter 13 cases are dismissed, usually because debtors fall behind on payments. From 2008 through 2010, 574,000 Chapter 13 cases were filed and subsequently dismissed, according to our analysis of filings. Under Equifax’s policy of keeping the flag on for 10 years, all those debtors would have a flag on their Equifax report through the end of 2017, but not on their TransUnion and Experian histories.
“It’s a problem, because you have a disparate treatment of debtors depending on which credit rating agency is reporting,” said Tara Twomey, an attorney with the National Consumer Law Center. “We really need consistent credit reporting for this system to work.”
ProPublica wrote the company again in July, prior to its recent disclosure that its records had been hacked, laying out the potential impact of its policy on consumers and asking why it differed from competitors. In an email, Equifax spokeswoman Nancy Bistritz-Balkan wrote that the company had “recently modified the length of time for how long a dismissed Chapter 13 bankruptcy remains on file.” Under the new policy, she wrote, “Equifax removes the flag for a Chapter 13 bankruptcy after seven years, regardless of outcome.”
She would not say what “recently” meant, only saying, “The change we referenced was not implemented after we received your inquiry.” As to why Equifax made the change, she wrote, “At this time, I do not have additional details about how the change was made.”
Story brought by ProPublica.

Next Post: Equifax Reveald Huge Data Breach. I cought this the minute the news broke. 

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Thursday, September 7, 2017

Equifax Reveals Huge Data Breach

Good job Equifax. Here is a Huge reason why everyone needs credit monitoring. With a good credit monitoring service, you will be able to see if you become a victim of Identity Theft from the data that these thieves stole from the databases of Equifax.

Go to our resources page: You will get all three credit reports in side-by-side format and all three of your credit scores for $1.00. We also have special low pricing for the monitoring subscription after the free trial period. Do this right now please.

Equifax, which supplies credit information and other information services, said Thursday that a data breach could have potentially affected 143 million consumers in the United States.
The population of the U.S. was about 324 million as of Jan. 1, 2017, according to the U.S. Census Bureau, which means the Equifax incident affects a huge portion of the United States.
Equifax said it discovered the breach on July 29. "Criminals exploited a U.S. website application vulnerability to gain access to certain files," the company said.
Shares of Equifax fell more than 5 percent during after-hours trading.
Equifax said exposed data includes names, birth dates, Social Security numbers, addresses and some driver's license numbers, all of which the company aims to protect for its customers.
The company added that 209,000 U.S. credit card numbers were obtained, in addition to "certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers."
"This is a security risk for any and every website that anyone uses," Christopher O'Rourke, CEO and founder of cyber-security firm Soteria told CNBC. "Most often, security questions to access those websites use that data, like a previous address, so this becomes an open-source intelligence nightmare, worse in many ways than the Office of Professional Management government breach. It's nasty. If I can get my hands on that information I can call a bank. They're going to ask me for your social, address, the information that was leaked here, to get access."
Equifax CEO and Chairman Richard Smith said apologized to consumers and customers and noted that he's aware the breach affects what Equifax is supposed to protect.
Equifax said it is now alerting customers whose information was included in the breach via mail, and is working with state and federal authorities. Its private investigation into the breach is complete.
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Thursday, May 18, 2017

Liberty Franchisees - Plan Your Breakout Schedule Now

This will be the FIFTH Liberty Tax Convention that Credit Restoration Associates has attended. June 1st-3rd at the Virginia Beach Convention Center. We are honored to be the preferred credit repair and business credit resource for Liberty Tax franchisees.

I have spoken at each one of the conventions on the topics of personal credit and business credit. Thinking about this upcoming one, made me remember my very first convention. Dan had me scheduled for 4 - fifty minute sessions back to back, starting Saturday morning at 9:00 am. It still ranks in my top 5 most interesting speaking situations. And - it turned out to be a very good day.

This year, I will be speaking on Friday at 2:30 and at 3:20 in Room 4-DE. These are ideal times. I look forward to as many franchisees as possible coming to one of the sessions. See you there!

Robert W Linkonis Sr.


Trending Data - The New Way that the Credit Bureaus Rate You.

The History of FICO

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