FICO Releases FICO Score Economic Calibration Service 2.0 to Improve Loss Forecasting and Capital Allocation Decisions
Lenders can make better capital allocation decisions under different economic conditions by understanding the resulting impact on consumer credit risk
SAN JOSE, Calif.—August 6, 2014—To help lenders predict future consumer risk under a variety of economic scenarios, FICO (NYSE:FICO), a leading predictive analytics and decision management software company, today announced the release of FICO® Score Economic Calibration Service 2.0. This service forecasts how credit risk levels at each FICO Score range would change under different economic scenarios, and can help financial institutions stress-test their credit portfolios with loss forecasting models while coordinating capital allocation. The FICO Score Economic Calibration Service combines FICO’s patented methodology with Moody’s Analytics’ expanded and regionalized forecasts of economic data under the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) scenarios and Corelogic’s Home Price Index (HPI).
The Economic Calibration Service 2.0 provides a forward-looking estimate of consumer repayment risk across the full range of the FICO® Score, based on multiple economic scenarios. By using the service, lenders can understand how repayment risk for consumers would change under varied economic conditions. The newest release of the service captures the most recent consumer credit behavior following the economic downturn by leveraging credit data through April 2014.
“The FICO Score Economic Calibration Service supports a bank’s strategic capital planning decisions and can be implemented at both a portfolio level and individual account level,” said Jim Wehmann, executive vice president, Scores at FICO. “This service can help lenders easily and confidently comply with CCAR/DFAST reporting requirements.”
The Economic Calibration Service incorporates Moody’s Analytics projections for more than 1,800 economic variables at the national and regional level, including labor market trends, interest rates, GDP, consumer leverage and house price indexes. FICO derives an empirical relationship between the default rates observed at different score ranges and historical changes in economic conditions, to project an expected probability of default ratio under those economic conditions.
“We are excited to work with FICO to help financial institutions link macroeconomic scenarios directly to credit risk,” says Cris deRitis, senior director at Moody’s Analytics. “By using our advanced scenario forecasting techniques and extensive macro database, we were able to expand the Fed’s scenarios and provide banks with a complete set of economic scenarios. The regional data leveraged by FICO can help banks to more accurately model and forecast potential losses from future changes in the economy.”
For more information on ECS go to http://www.fico.com/en/products/fico-score-economic-calibration-service/ and for Moody’s Analytics forecast scenarios visit www.economy.com/ccar.
FICO (NYSE: FICO) is a leading analytics software company, helping businesses in 90+ countries make better decisions that drive higher levels of growth, profitability and customer satisfaction. The company’s groundbreaking use of Big Data and mathematical algorithms to predict consumer behavior has transformed entire industries. FICO provides analytics software and tools used across multiple industries to manage risk, fight fraud, build more profitable customer relationships, optimize operations and meet strict government regulations. Many of our products reach industry-wide adoption. These include the FICO® Score, the standard measure of consumer credit risk in the United States. FICO solutions leverage open-source standards and cloud computing to maximize flexibility, speed deployment and reduce costs. The company also helps millions of people manage their personal credit health. FICO: Make every decision count™. Learn more at www.fico.com.
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