I had the chance to attend the Structured Finance Industry Group’s annual conference in Las Vegas, where SFIG’s members, including securities investors in a range of industries — from mortgage to auto to commercial lending — gather to discuss the latest and greatest in securitization. During the conference, FICO also took the opportunity to survey these investors about how they use credit scores to evaluate loans, what factors they want to see included in scores, and what makes them trust one score over another.
Here’s what I learned:
The FICO Score is the most trusted metric for loan quality.
Nearly half of respondents (45 percent) said the FICO® Score was the most useful criteria in evaluating the quality of loans for secondary market investments, the most of any criteria for analyzing a loan. Loan-to-Value Ratio (34 percent) was second, and Debt-to-Income Ratio (10 percent) was third.
FICO has been the independent, trusted leader in credit scoring for decades. Investors continue to trust the FICO® Score more than any other credit risk factor as it has demonstrated historical performance over market cycles. Historical data supports investors in building robust prepayment and default models.
Investors want to see new data used for generating credit scores.
More than 90 percent of respondents said the inclusion of checking and saving account data to a credit score would be helpful in evaluating a pool of loans. With the new UltraFICO™ Score, a pilot initiative between FICO, Finicity and Experian, consumers can contribute their checking, savings and money market accounts to enhance the predictiveness of their credit score based on indicators of sound financial behavior, including:
- Length of time accounts have been open
- Recency and frequency of bank transactions
- Evidence of consistent cash on hand
- History of positive account balances
Independence in credit scoring is essential.
Likewise, more than 90 percent of investors said it was very or somewhat important that credit score developers are independent from the credit reporting agencies. A majority (51 percent) called it very important, while another 42 percent said it was somewhat important.
FICO is an independent data analytics company. For decades, lenders have trusted the reliability and independence of the FICO®Score to provide a robust and accurate measure of predicting consumer credit risk.
Investors don’t trust scores without robust minimum scoring criteria.
Only 7 percent of respondents would be very confident in a credit score with a one-month credit history, while 42 percent said they would be somewhat confident and 51 percent would have no confidence. Similarly, more than 60 percent would have no confidence in a credit score that leveraged credit bureau data that had not been updated in the last 24 months.
For information on how to join the Secondary Market Portal please email us at ABSinfo@fico.com.
This online automated survey was conducted at the Structured Finance Industry Group in Las Vegas in February 2019.