Tag Archives: Mortgage

Risk & Compliance FICO Research: Are Millennials Really Abandoning Credit?

Feb082017

Nothing fascinates us more in the world of demographics than what the Millennial generation think, do and how they act.  One thing for sure is that, as they vie with the Baby Boomers to be the largest demographic group here in the USA, what they do is important. And we don’t need to be statisticians to know that the Baby Boomer generation isn’t going to be getting any bigger. The question for many in financial service boils down to this: Are Millennials really abandoning us? The topic came to mind for me recently as I was asked to be part of a panel discussion on credit and the economy at an ABS East conference. Since much of what gets said about Millennials seems to be more opinion than fact, I decided to look at a few stats and see if we could cast any light on what might be happening.... [Read More]

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Risk & Compliance Truth Squad: Will Weaker Scoring Criteria Create a Mortgage Surge?

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Jan102017

Participants and Influencers throughout the mortgage ecosystem have been told by the three main US credit bureaus through their jointly owned and controlled credit scoring firm, VantageScore, that the VantageScore can enable millions more consumers to gain access to a mortgage. It’s an appealing story — but is it true? Claim: Loosening credit scoring criteria will bring lenders an additional 3.4 million potential borrowers, over 2.6 million of whom will qualify for mortgage credit. Truth: Very few new people will both qualify for mortgages and want mortgages. The “innovation” VantageScore claims can score more people is simply the weakening of credit score criteria. The minimum criteria needed to produce the FICO Score aren’t arbitrary — they are the result of decades of research into risk assessment. As a reminder, reliable credit scores can only be calculated from credit files with at least one open credit account for at least six... [Read More]

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Risk & Compliance Truth Squad: Will Looser Scoring Standards Help Millions More Americans Get Mortgages?

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Nov152016

Access to credit and the path to homeownership are important parts of the American way of life. That’s why it’s critical to understand what can be done to improve financial inclusion — and what won’t work. For months now, the three main US consumer reporting agencies – through their VantageScore business – have been claiming that millions of credit-starved Americans can get access to mortgages through the “innovation” of simply eliminating long-standing and essential minimum credit scoring criteria. This isn’t innovation, and it won’t help borrowers.  It’s time to set the record straight. Claim: By loosening the minimum scoring criteria, VantageScore can give millions of currently unscoreable Americans a credit score, making them mortgage-ready. Truth: Scoring sparse and old data may give more Americans a score, but it won’t help those Americans who are actually seeking homeownership credit.  Even worse, it locks millions of Americans into unfairly low scores. To... [Read More]

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Risk & Compliance FICO Research: Student Loan Explosion Hurts Other Borrowing

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Oct202016

The student loan crisis in the US is getting much worse — student loan debt is over $1.3 trillion and is increasing by more than $2,700 per second. Lenders cannot ignore the impact of that debt on individual borrowing. Our latest research shows that: The number of US consumers aged 25-34 with student loan debt of at least $50,000 doubled from 2005 to 2015. During that same time, the average student loan debt across all age 25-34 consumers also doubled — by comparison, average credit card debt and mortgage debt for this population actually fell. While the number of consumers age 25-34 with student loans grew from 2005 to 2015 (from 27% of this population to 40%), there are fewer 25-34 year olds with mortgages or credit cards than 10 years ago.   In fact, our data shows that people with active student loans are far less likely to have... [Read More]

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Risk & Compliance Research Shows Mortgage Delinquencies Rise for Older Consumers

Sep272016

FICO research consistently shows that older consumers have higher FICO® Scores than their younger counterparts. But a recent report by the Mortgage Bankers Association (MBA) provides evidence that people become less reliable at making their mortgage payments as they age. Can both of these assertions be right? To get to the bottom of this, FICO conducted fresh research on credit behavior trends by age. Our study revealed not only that mortgage delinquency rates rise for US consumers beyond a certain age, but that these delinquency increases were observable across other loan types. Is this cause for concern? And was the MBA correct in their conclusion that declining memory and other cognitive skills are the main contributing factor? In this post, I’ll share our research findings and draw a few conclusions based on what we see in the data. Delinquency Trends by Age For this research, we examined payment behavior using... [Read More]

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Risk & Compliance Home Mortgage Disclosure Act Requires Fast Start and Stamina

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Feb102016

For mortgage professionals still recovering from clearing the latest compliance hurdle, it is time to lace up for the next challenge—the Home Mortgage Disclosure Act (HMDA) decathlon. Less than two weeks after the compliance deadline for the TILA-RESPA Integrated Disclosure (TRID) rule, the CFPB issued its final rule revising HMDA (Regulation C). Expansive changes to the rule mean mortgage lenders don’t get much of a compliance breather, despite an effective date that for many is still nearly two years away. Adopted in 1975, HMDA requires certain mortgage lenders to collect and report a wide array of home loan application information. This information was intended to help assess whether lenders were serving the housing needs of communities. In addition, HMDA data is an integral focus for the Department of Justice and Consumer Financial Protection Bureau (CFPB) in identifying red-lining and other fair lending violations. The Dodd-Frank Act directed the CFPB to... [Read More]

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Risk & Compliance Are Credit Standards Relaxing as the Housing Market Heats Up?

Nov112015

With some US housing markets heating up, new FICO research shows a potentially troubling trend: credit standards appear to be loosening, particularly in parts of California and Texas. In this blog post, I’ll share key findings from this mortgage research study. First, we identified the cities experiencing the largest home price increases since the Great Recession – specifically, Q1 2015 home prices compared to the minimum home price since Q4 2009. The chart below illustrates the Federal Housing Finance Agency’s (FHFA) House Price Index (HPI) for the five Metropolitan Statistical Areas (MSAs) with the largest housing price increases during this timeframe: Las Vegas was one of the hardest hit cities during the recession. But what’s most striking about this analysis is the concentration of Central California MSAs among the top five. All of these cities saw severe home price decreases, but in recent years, it’s very much a story of... [Read More]

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Risk & Compliance HELOC Resets: Here We Go Again?

Oct212015

In my last post, I shared new FICO research on home equity line of credit (HELOC) resets. The good news: after examining credit performance of HELOCs older than 10 years, we found little evidence that HELOC bad rates increase dramatically after their reset dates. However, our research uncovered a potential new concern: with the US housing market recovering, consumer appetite for HELOCs appears to be increasing again. Consider the current balances of HELOCs by the year booked: As house prices fell during the Great Recession, significantly fewer HELOC loans were booked. However, as house prices recover, consumers are once again taking advantage of these loans in large numbers, as shown by the increase in the blue line in the graphic above. In the past year, we find balances on HELOCs similar to what was booked in 2003. While recent HELOC growth is slightly less pronounced compared to the years prior... [Read More]

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Risk & Compliance HELOC Resets: Greater Risk on the Horizon?

Oct152015

In the run-up to the Great Recession, millions of US consumers borrowed large amounts via home equity lines of credit (HELOCs). Since these loans are about to hit their 10-year reset marks, I’ve been sharing research findings from our latest study on HELOCs. We’ve found good evidence that, after these HELOCs hit their reset dates, borrowers are indeed paying more and/or refinancing. This begs the question: do HELOCs that continue beyond their reset date have a drop in credit performance? In other words, are higher payments causing more borrowers to default on these loans? To answer this, we examined HELOC one-year delinquency rates (90 or more days past due) across three different points in time, comparing a recent timeframe to one at the height of the Great Recession and another prior to the recession. Here’s the recent snapshot: While bad rates start to increase around the fifth year of maturity,... [Read More]

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Risk & Compliance HELOC Resets: Cause for Concern?

Oct062015

Worries about widespread home equity line of credit (HELOC) resets have been growing slowly but steadily in recent years. Over the next few years, HELOCs granted to millions of US homeowners prior to the Great Recession will reach their 10-year mark, which is when the bulk of HELOCs “reset” – that is, they become closed-end loans, and any remaining balance must be paid off in the following years. When these lines of credit convert from interest-only to principal + interest, consumers will likely see significant increases in their monthly payments. While some may refinance into another loan, there is concern that those who do not refinance may charge-off at increased rates. As a result, the banking industry faces a potential double-whammy of larger volumes of HELOCs hitting their reset dates, along with greater loss rates on those larger volumes. With that in mind, we undertook a research study to better... [Read More]

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