Impact of Mortgage Assistance on Credit

Transcription

The Impact of Mortgage Assistance on Credit
Joanne M Gaskin, AMP
Senior Director
Scores and Analytics
FICO
June 6, 2013
Confidential. This presentation is provided for the recipient only and cannot
be reproduced or shared without Fair Isaac Corporation's express consent.
© 2013 Fair Isaac Corporation.
Agenda
» Overview of FICO Organization
» The importance of establishing and
maintaining good credit
» How your FICO score is calculated
» Credit Score impact of mortgage assistance
to foreclosure
» How can you rebuild your credit?
» The impact of Credit Counseling?
2
© 2013 Fair Isaac Corporation. Confidential.
FICO Snapshot
3
Profile
The leader in predictive analytics for decision management
Founded: 1956
NYSE: FICO
Revenues: $620 million (fiscal 2011)
Products
and Services
Scores and related analytic models
Analytic applications for risk management, fraud, marketing
Tools for decision management
Clients and
Markets
5,000+ clients in 80 countries
Industry focus: Banking, insurance, retail, health care
Recent
Rankings
#1 in services operations analytics (IDC)
#7 in worldwide business analytics software (IDC)
#26 in the FinTech 100 (American Banker)
Offices
20+ offices worldwide, HQ in San Jose, USA
2,200 employees
Regional Hubs: San Rafael, San Diego, New York, Minneapolis, Toronto,
Sao Paulo, London, Madrid, Munich, Bangalore, Beijing, Singapore
FICO Products Include Scores and Much More
For Lifecycle Specific Decision Processes
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4
FICO Products/Applications are Market Leaders
5
Credit Risk
FICO® Score
#1 credit risk score
Standard measure of US consumer credit risk,
used by lenders, rating agencies and
secondary market
Powers 10 billion credit decisions a year,
including more than 90% of all US mortgage
loans
Customer
Management
FICO® TRIAD®
Customer Manager
#1 credit account management system
Used to manage 65% of card accounts
worldwide
Fraud
FICO™
Fraud Manager
#1 credit fraud solution
Protects 2 billion cards worldwide
Has saved US card issuers $10+ billion
Decision
Automation
FICO™ Blaze
Advisor® business
rules management
system
#1 ranking business rules management system
for complex decision processes
Falcon®
FICO Provides Game-Changing Analytics
First credit line
optimization
solutions
FICO holds 100+ patents in analytic
and decision management technology,
with 150 more patents pending
First insurance
underwriting
scoring systems
First
commercially
available credit
scoring systems
First automated
origination
systems with
analytics
1960s
6
1970s
First adaptive
control systems
for managing
card accounts
1980s
First predictive
systems for
insurance fraud
First crossbureau credit
scores
First analytic
systems for
retailers to
optimize offers
First small
business scoring
systems
First adaptive
analytics for
fraud
First neural
network-based
fraud solutions
First credit
capacity scores
First cardholder
profiling for fraud
1990s
First score for
prescription
adherence
2000s
Agenda
to foreclosure
7
Your credit score – A vital part of your credit health
» When you apply for credit whether it is a credit card, car loan, a
personal loan or mortgage, lenders want to know your credit risk
level, or how likely is it that they will be paid back
» Both positive and negative data regarding prior credit patterns
can be found at the credit bureaus
» A credit score or FICO score is a number that summarizes your
credit risk based on the current snapshot of the credit report
» FICO Scores give lenders a fast, objective estimate of your credit
risk
» Most lenders incorporate credit scores into making credit granting
decisions so your credit score or prior credit performance will
influence the credit offers you receive
8
2013 Case Studies
Mortgage Example
» Smiths’ – with a 760 credit score applied for a mortgage and received a 3.66%
interest rate.
» The Jones’ – with a 620 credit score applied for a mortgage and received a
5.27% interest rate.
» On a $200,000 USD 30 year fixed rate mortgage, the increased interest rate
due to higher perceived risk by the lender would cost the Jones’ an additional
$2,280 dollars a year, adding up to $68,400 more over the life the loan
Auto Example
» Smith’s – with a 760 credit score applied for a auto loan and received a 3.98%
interest rate
» The Jones’ – with a 620 credit score applied for a auto loan and received a
10.8% interest rate
» On a $30,000 USD 36 month auto loan, the increased interest rate due to higher
perceived risk by the lender would cost the Jones’ an additional $2,076 per
year, adding up to an additional $6,228 over the life of the loan.
9
Real World Impacts
Poor credit and credit scores may result in other consequences:
» Landlord approval: A low credit score can make it harder to rent a
home because landlords often use credit scores to weed out
prospective renters.
» Deposits: Even if a landlord decides to rent to an individual with a
lower credit score, the level of deposits a borrower pays for
telephone, electricity or natural gas service may be higher if the
score is lower.
» Auto Insurance: The average savings for someone with a good
versus mediocre credit score is about $115 a year for auto
insurance and $60 for home, according to the Insurance
Information Institute.
10
Agenda
to foreclosure
11
Predictive Characteristics
CONSIDERED
Trade lines
Inquiries
Collections
Public Records
12
NOT CONSIDERED

Address
Employment
Income

Gender

Age
Scores are designed to rank order risk
720
680
640
600
13
Predictive Characteristics Drive the Score
Library of
300+
characteristics
Core group of 40
most predictive
characteristics
14
Categories of Predictive Characteristics
5.
4.
Pursuit of
New Credit
Credit
Mix
10%
1.
10%
Payment
History
3.
35%
Credit History
Length
15%
2.
Outstanding
Debt
30%
15
1. Payment History
1.
Key Factors
» How recent is the
most recent delinquency,
collection or public
record item?
» How severe was the
worst delinquency—
30 days, 90 days?
Payment
History
5.
4.
Pursuit of
New Credit
16
10%
10%
3.
Credit History
Length
15%
» How many credit
obligations have been
delinquent?
Credit
Mix
2.
Outstanding Debt
30%
35%
Payment History
Example
Risk
High
Low
0–11
12–23
24–35
36–47
48–High
Months Since Most Recent Major Delinquency
17
No Delq
2. Outstanding Debt
Key Factors
» How much does the
consumer owe creditors?
» What percentage of
available credit card
limits is the consumer
using?
» What percentage is
outstanding on open
installment loans?
5.
4.
Pursuit of
New Credit
Credit
Mix
1.
10%
Payment
History
10%
3.
35%
Credit History
Length
15%
2.
Outstanding Debt
30%
18
Outstanding Debt
Example
Risk
High
Low
0-19%
20-39%
40-59%
60-79%
80-99%
Ratio of Total Balances to
Total Limits on Revolving Accounts
19
100+%
3. Credit History Length
Key Factors
» How long have
accounts been
established—
average number of
months accounts
have been open
» New accounts—
number of months
since most recent
account opening
20
5.
4.
Pursuit of
New Credit
3.
Credit
Mix
1.
10%
Payment
History
10%
35%
Credit History
Length
15%
2.
Outstanding Debt
30%
Amount of Credit History
Example
Risk
High
Low
0–23
24–47
48–71
72–119
Number of Months Since
Oldest Revolving Account Opening
21
120+
4. Pursuit of New Credit
Key Factors
» Inquiries: Number
of recent inquiries
(12 months)
» New accounts—
number of trade
lines opened in
last year
4.
Pursuit of
New Credit
5.
10%
Credit
Mix
1.
10%
Payment
History
3.
35%
Credit History
Length
15%
2.
Outstanding Debt
30%
22
Types of Inquiries
» FICO® scores only consider consumer-initiated inquiries for credit
posted in the last 12 months
» FICO® scores do not consider the following inquiries:
»
»
»
»
»
23
Promotional inquiries
Account review inquiries
Consumer disclosurer inquiries
Insurance inquiries
Employment inquiries
5. Credit Mix
Key Factors
» What is the mix of credit
product types?
» Revolving credit—number
of bankcard trade lines
» Installment credit—percent
of trade lines that are
installment loans
5.
Credit Mix
10%
4.
Pursuit of
New Credit
1.
10%
Payment
History
3.
35%
Credit History
Length
15%
2.
Outstanding Debt
30%
24
FICO Minimum Scoring Criteria
» Not deceased
» One trade line open at least 6 months
» One undisputed trade line updated in last 6 months
25
Agenda
» Credit Score impact of mortgage
assistance to foreclosure
26
Impact on credit: Loss mitigation actions
» A borrower’s FICO® score can be impacted due to loss mitigation
actions.
» The severity of the impact depends on the borrower’s credit history
and how the lender reports the action to the credit bureau.
» A borrower with a high FICO score may drop more than 100 points if
a borrower is involved with a foreclosure, short sale or deed-in-lieu.
»
Foreclosure, short sale and deed-in-lieu impact the consumer score
in a similar way because typically in each of these cases the
borrower is seriously delinquent.
» A short sale tends to be reported as “settled for less than the full
amount due,” “deed-in-lieu of foreclosure,” or “charge-off” which are
considered negatively by the FICO® score.
» The impact of a forbearance or repayment plans depends on how the
servicer reports to the credit bureaus. If reported as “paying under a
partial payment agreement,” it could have a negative impact on a
borrower’s FICO score.
»© 2010 Fair Isaac Corporation. Confidential.
27
Simulated Impact to FICO Score
Consumer A
Starting FICO Score
Consumer B
Consumer C Consumer D
680
720
780
820
30-day late on mtg
60-days late on mtg
90-days late on mtg
600-620
600-620
600-620
630-650
610-630
610-630
670-690
650-670
650-670
710-730
665-685
665-685
Short Sale/Deed-inlieu/settlement
(with no deficiency
balance)
610-630
605-625
655-675
660-680
Short Sale (with deficiency
balance)
575-595
570-590
620-640
625-645
Foreclosure
575-595
570-590
620-640
625-645
BK
530-550
525-545
540-560
550-570
Score after the following
actions were taken:
Note: Simulation assumes all else held constant on the consumer credit file
28
Time to Recover FICO Score Simulation
Consumer A
Starting FICO Score
Consumer B
Consumer C
Consumer D
680
720
780
820
30-day late on mtg
~9 months
~2.5 years
~3 years
~7 years
60-days late on mtg
~9 months
~2.5 years
~3 years
~7 years
90-days late on mtg
(with no deficiency
balance)
~9 months
~3 years
~7 years
~7 years
~3 years
~7 years
~7 years
~7 years
Short Sale (with deficiency
balance)
~3 years
~7 years
~7 years
~7 years
Foreclosure
~3 years
~7 years
~7 years
~7 years
BK
~5 years
~7-10 years
~7-10 years
~7-10 years
Time for Score to Recover
from the following actions
Note: Simulation assumes all else held constant on the consumer credit file
29
Most Lenders would consider this score as….
Consumer A
680 FICO
Starting FICO Score
Score after the
following actions were
taken:
30-day late on mtg
60-days late on mtg
90-days late on mtg
(with no deficiency
balance)
Short Sale (with
deficiency balance)
30
Consumer B
720 FICO
Consumer C
780 FICO
lower risk
very low risk
extremely low risk
exceptionally low
risk
somewhat higher risk
somewhat higher
risk
lower risk
very low risk
somewhat higher
risk
lower risk
lower risk
somewhat higher
risk
lower risk
lower risk
somewhat higher
risk
lower risk
lower risk
fairly high risk
somewhat higher
risk
somewhat higher
risk
somewhat higher
risk
fairly high risk
fairly high risk
Foreclosure
fairly high risk
fairly high risk
somewhat higher
risk
BK
very high risk
very high risk
very high risk
Consumer D
820 FICO
Short Sale – Score Distribution Over Time
Score Distribution
Short Sale
(Account Paid for Less than Full Balance)
October 2009
October 2010
April 2012
14%
12%
10%
8%
6%
4%
2%
0%
300 499
31
500 519
520 539
540 559
560 579
580 599
600 619
620 639
640 - 660 - 680 659
679
699
FICO® 8 Score
700 719
720 739
740 759
760 779
780 799
800 819
820 850
Foreclosure – Score Distribution Over Time
Score Distribution
Consumers with a Foreclosure
October 2009
October 2010
April 2012
25%
20%
15%
10%
5%
0%
300 499
32
500 519
520 539
540 559
560 579
580 599
600 619
620 639
640 - 660 - 680 659
679
699
FICO® 8 Score
700 719
720 739
740 759
760 779
780 799
800 819
820 850
Loan Modification (Government) – Score Distribution
Over Time
Score Distribution
Loan Modified Under a Federal Government Plan
October 2009
October 2010
April 2012
16%
14%
12%
10%
8%
6%
4%
2%
0%
300 499
33
500 519
520 539
540 559
560 579
580 599
600 619
620 639
640 - 660 - 680 659
679
699
FICO® 8 Score
700 719
720 739
740 759
760 779
780 799
800 819
820 850
Agenda
to foreclosure
34
How can you rebuild your credit?
» Check Your Credit Report – request a free copy of your credit report at
AnnualCreditReport.com and check it for errors. Your credit report contains the
data used to calculate your score and it may contain errors. In particular, check
to make sure that there are no late payments incorrectly listed for any of your
accounts and that the amounts owed for each of your open accounts is correct.
If you find errors on any of your reports, dispute them with the credit bureau and
reporting entity.
» Setup Payment Reminders – Making your credit payments on time is one of
the biggest contributing factors to your credit score. You could also consider
enrolling in automatic payments through your credit card and loan providers to
have payments automatically debited from your bank account.
» Reduce the Amount of Debt You Owe – Come up with a payment plan that
puts most of your available budget for debt payments towards the highest
interest cards first, while maintaining minimum payments on your other accounts
35
FICO Score Tips
» Pay your bills on time
» If you have missed a payment, get current and stay current
» Be aware that paying off a collection account or closing an account with
previous missed payments will not remove it from your credit report
» If you have having trouble making payments, contact your lender or a
qualified credit counselor
» Keep balances low on credit cards
» Pay off debt rather than moving it around
» Don’t close unused credit cards in an attempt to raise your score
» Don’t open a number of new trade lines in an attempt to raise your
score
» If you have been managing credit for a short time avoid opening up a lot
of credit at one time
» Avoid credit repair agencies that charge a fee to improve your score
36
Agenda
to foreclosure
37
The Impact of Credit Counseling
» Increase awareness and utility of responsible credit behavior
» Consumers have a growing demand for:
» Credit education
» Understanding of how credit scores are established
» More control and influence over credit decisions
» Informed consumers generally have improved credit performance
» Seeking assistance from a credit counselor will not negatively
impact a consumer’s FICO score
38
Questions?
Resources:
www.myfico.com
www.scoreinfo.org
http://bankinganalyticsblog.fico.com/
June 6, 2013
Confidential. This presentation is provided for the recipient only and cannot
be reproduced or shared without Fair Isaac Corporation's express consent.
39
© 2013 Fair Isaac Corporation.
Appendix
40
Metro 2 Guidelines
» Every CRA maps the Metro 2 code to the nuances of their
database. The following table lists the account status or the
special comment associated with a given event.
Code:
Paying under a partial payment agreement
Foreclosure
Forfeit of deed in lieu of foreclosure
Account paid for less than full balance
Account paid after foreclosure started
Making payment - foreclosure was initiated
Principal deferred/interest payment only
Foreclosure process started
Loan modified under a federal govt plan
Loan modified
Account in forbearance
Account Status:
94
89
AU
65
Please refer to CDIA reporting guidelines for specific reporting criteria.
41
Special
Comment:
AC
BO
BT
BO
CN
CO
CP
Trends In Mortgage Codes
» The frequency of foreclosure, short sale, loan remediation codes
has increased noticeably
Code:
Paying under a partial payment agreement
Foreclosure
Forfeit of deed in lieu of foreclosure
Account paid for less than full balance
Account paid after foreclosure started
Making payment - foreclosure was initiated
Principal deferred/interest payment only
Foreclosure process started
Loan modified under a federal govt plan
Loan modified
Account in forbearance
# of Consumers w/ Specific Mortgage Trade Line
2005
2007
2009
2011
195,000
269,000
967,000
460,000
878,000
954,000 1,327,000 1,936,000
9,000
16,000
34,000
64,000
107,000
139,000
444,000 1,049,000
86,000
120,000
162,000
195,000
40
60
20
20
10,000
53,000
71,000
77,000
770,000 1,216,000 2,581,000 2,807,000
0
0
0
879,000
0
0
0 1,049,000
0
0
0
0
Counts extrapolated from smaller, 5% sample of CRA database
42
FICO® 8 Score Segmentation
CREDIT BUREAU FILE
Presence of
Serious Delinquency /
Derogatory Items ?
No
8 Non-Derogatory
Scorecards



Yes
4 Derogatory
Scorecards
8
Thickness of file
Age of file
Recency of new
openings
7
6
4
5
4
3
2


Public record
Worst rating
3
2
1
1
Return Final
FICO® 8 Score
43
Return Final
FICO® 8 Score

Impact of Mortgage Assistance on Credit

Transcription

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