FICO: The ‘Credit Score Monopoly’ is a Myth

first_img Tagged with: Credit Score Fannie Mae FICO Freddie Mac Mortgage Credit Access About Author: Xhevrije West in Daily Dose, Featured, News, Secondary Market Fannie Mae and Freddie Mac recently made headlines when congress members said that the GSEs had a monopoly on their credit scoring system due to their singular use of the FICO Score.The H.R. 4211 bill, also titled the “Credit Score Competition Act of 2015,” was introduced by U.S. Rep. Ed Royce (R-California) and U.S. Rep. Terri Sewell (D-Alabama)—both members of the House Financial Services Committee—to the House of Representatives.The bill would allow Fannie Mae and Freddie Mac to consider alternative credit-scoring models instead of the FICO model, which would open up homebuying options for many consumers whose credit does not meet the current standards.Together, Fannie Mae and Freddie Mac occupy 90 percent of the secondary mortgage market, the release said. The use of one credit scoring model has nearly created a monopoly in this field. Reps. Royce and Sewell suggest that additional credit scoring models would “foster competition and innovation in the credit scoring industry.”“The GSEs’ use of a single credit score is an unfair practice that stifles competition and innovation in credit scoring. Breaking up the credit score monopoly at Fannie and Freddie will also assist them in managing their credit risk and decreases the potential for another taxpayer bailout,” Rep. Royce said.These accusations bring up one important question: How does FICO feel about the situation?Joanne Gaskin, Senior Director, Scores & Analytics at FICO, sat down in an exclusive interview with DS News to reveal where the company stands in this move to introduce more credit scoring systems at Fannie Mae and Freddie Mac and enhance credit access among borrowers.Q: What is FICO’s stance on the new credit scoring model proposed in the newly introduced regulation to change the singular, FICO credit scoring model at Fannie Mae and Freddie Mac and consider more options?A: We understand the intent of the legislation that has been put forward. The interesting thing to note is the GSEs process of evaluating the competing scoring models for potential adoption is actually well underway. FICO fully supports the evaluation process that’s going on right now. We think the key is to simply allow the GSEs and the FHFA to continue to conduct their analysis without interference.In fact, the FHFA 2016 Scorecard, discusses the analysis conducted in 2015 which included the assessment of leveraging alternate or updated credit scores as appropriate. We would like to see the market adopt our latest score version: FICO Score 9.FICO Score 9 is the latest scoring model and most-predictive to-date. An important new feature of FICO Score 9 is that we have differentiated treatment for medical collections from non-medical collections, which has been discussed at great lengths in the marketplace. It is an approach to drive as much value out of the data that exists in order to make the most predictive score for origination purposes. A more predictive score tends to mean more consumers qualify for credit or qualify for better terms.Q: How does the newly introduced regulation affect the mortgage industry? Are we locking out potential buyers using only one scoring system?A: The newly -introduced legislation supports the existing process of GSEs and FHFA in the evaluation of competing credit score models.The implication that the GSEs’ use of the FICO Score is locking potential buyers out is without merit. Today, 190 Million consumers receive a FICO Score. There are an additional 28 Million consumers that have information at the three major credit bureaus but do not obtain a FICO Score for the following reasons: “inactive credit” (e.g. 3-4 years since any account was last updated), “collection-only” (i.e., this is the only information in their credit file), or they have only a single account that is “too new” (less than 6 months payment history). Scoring these individuals is not only analytically unsound but will lock many consumers into low scores effectively freezing them out of mainstream credit. It is punitive to return a low score to these consumers whose credit status is frozen in time—often as a result of a period of prior financial distress.Furthermore, returning a score for consumers who have a single tradeline less than 6 months old or have collection-only information in their credit files will not qualify them for a mortgage. Lastly, a consumer without a credit score can avail themselves of the GSEs manual underwriting process as a pathway to homeownership.Q: Is this singular model really a credit score monopoly at Fannie and Freddie? Is it fair? What about competition in the industry for other credit scorers? How do we innovate?A: There is no credit score monopoly. Lenders have always freely acquired FICO scores from the three primary credit repositories for making credit score decisions. The GSEs are conducting a comprehensive evaluation today of competing credit score models. The process is very similar to that which lenders undertake.There is no monopoly; instead there is a decision process well underway in order to make a determination what scores will be most beneficial for the GSEs to use within their business. FICO happens to be just one input to the overall automated underwriting process. In fact, the GSEs developed their own credit model to make the purchase decisions. The interesting thing is if we look outside of the mortgage space, the most widely used scoring model in the marketplace is FICO Score 8, which is not in use by the GSEs. So, the GSEs’ selection of a score does not create a monopoly.Q: If Congress does not move forward with the bill, in what ways can we increase access to credit? Is FICO doing anything to increase access to mortgage credit?A: Access to credit is an incredibly important issue. What FICO is doing now in that realm is the introduction of a new scoring model called FICO Score XD, which is intended to address the ‘credit invisible’ population or the population of about 50 million consumer who have absolutely no information at the three main credit repositories. We have gone out and looked for compliant datasets that come from both Equifax and Lexis Nexis in order to create a score that will open a pathway to credit for those that are credit invisible today. This is a much better approach than just relaxing minimum credit score criteria and using stale data at the credit repositories in order to score more consumers.FICO Score XD is in pilot mode right now with the 12 largest credit score issuers. We expect a full release for unsecured credit into next year. FICO Score XD creates a great opportunity for a consumer to gain access to credit because they have either paid a utility on time, telecom, or have other positive information outside of the credit repositories to help create this new pathway to credit. Once a consumer has acquired credit through the use of FICO Score XD for six months, they will obtain a traditional FICO score. This is a great approach for solid, sustainable access to credit. December 18, 2015 2,174 Views Previous: TRID: Focus is On Efficiency While Maintaining Compliance Next: What Will Drive the Future Growth of the SFR Market?  Print This Post Credit Score Fannie Mae FICO Freddie Mac Mortgage Credit Access 2015-12-18 Brian Honea FICO: The ‘Credit Score Monopoly’ is a Myth Servicers Navigate the Post-Pandemic World 2 days ago Demand Propels Home Prices Upward 2 days ago The Week Ahead: Nearing the Forbearance Exit 2 days ago Servicers Navigate the Post-Pandemic World 2 days ago Governmental Measures Target Expanded Access to Affordable Housing 2 days ago Data Provider Black Knight to Acquire Top of Mind 2 days ago The Best Markets For Residential Property Investors 2 days ago Governmental Measures Target Expanded Access to Affordable Housing 2 days ago Demand Propels Home Prices Upward 2 days ago Data Provider Black Knight to Acquire Top of Mind 2 days ago Related Articles The Best Markets For Residential Property Investors 2 days ago Home / Daily Dose / FICO: The ‘Credit Score Monopoly’ is a Myth Xhevrije West is a talented writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University. Share Save Sign up for DS News Daily Subscribelast_img read more

2018 FIFA World Cup Qualifying Wrap (Europe): Former Winners On The Brink

first_imgStandings:1. Belgium 25 points2. Greece 16 points3. Bosnia and Herzegovina 14 points4. Estonia 11 points5. Cyprus 10 points6. Gibraltar 0 pointRelated2018 FIFA World Cup Qualifying Wrap (UEFA): France, Portugal Qualify; Netherlands Eliminated Despite WinOctober 11, 2017In “FIFA”Denmark, Ireland World Cup Playoff Clash In The Balance After StalemateNovember 12, 2017In “FIFA”2018 World Cup Qualifying Wrap (Europe): England, Germany Secure Final SpotsOctober 6, 2017In “Europe” Former World Cup winners France are on the brink of booking their place at next year’s tournament in Russia after they recorded a slim 1-0 win against Bulgaria in Group A.Blaise Matuidi scored the only goal of the game for the visitors as early as the third minute to hand the French team their 6th win in the qualifiers. They just need a win against lowly Belarus at home in their final qualifier to seal a spot at the World Cup.Still staying with the Group, three-time finalists Netherlands are in danger of missing out despite beating Belarus 3-1 away from home. The Oranje as they are fondly called are currently three points adrift of the playoff place and they next face Sweden, who occupy the playoff spot.The 1974, 1978 and 2010 World Cup finalists need to beat Sweden at home on Tuesday by at least 7 goals to have any chance of booking their place in Russia 2018 via the playoffs.In Group B, Switzerland only need a draw in their final qualifier against hosts Portugal on Tuesday to book their ticket after a dominant 5-2 win over Hungary with Arsenal star Granit Xhaka getting one of the goals for the home side.On the other hand, Portugal will need to beat Switzerland in the aforementioned game to qualify for Russia 2018 automatically and condemn the Swiss to the playoffs. Superstar forward Cristiano Ronaldo and Andre Silva scored for the European Champions in a 2-0 win at Andorra to put them in that position.Group A:Sweden 8-0 LuxembourgBulgaria 0-1 FranceBelarus 1-3 NetherlandsStandings:1. France 20 points2. Sweden 19 points3. Netherlands 16 points4. Bulgaria 12 points5. Belarus 5 points6. Luxembourg 5 pointsGroup B:Switzerland 5-2 HungaryFaroe Islands 0-0 LatviaAndorra 0-2 PortugalStandings:1. Switzerland 27 points2. Portugal 24 points3. Hungary 10 points4. Faroe Islands 9 points5. Andorra 4 points6. Latvia 4 pointsGroup H:Bosnia and Herzegovina 3-4 BelgiumCyprus 1-2 GreeceGibraltar 0-6 Estonialast_img read more