Page 7 - EQ Mag-2019
P. 7


 The unscoreables

 problem gets worse

 By: Barrett Burns

 as the plight of the conventionally unscoreable   little solace to the consumers directly (and even
 worsened? Unfortunately, based on a recent   adversely) impacted.
 HVantageScore analysis, it has been exacerbated.
 Consider this map (on page 6) of the United States
 As the overall population has increased, so has the   that shows the percentage of consumers within each
 number of consumers who are not scoreable when   state who fall into the conventionally unscoreable
 conventional credit scoring models are used. Indeed, we   category but can obtain a score using our latest
 estimate that based on the 2017 U.S. Census, the   model.
 overall population grew to more than 326 million and the

     models from FICO, which makes homeownership for              without the markets benefiting from competition.
     these consumers very difficult.
                                                                  Our press statement is included in the newsletter as
     Critical for lenders and their regulators to understand      well.
     is the predictiveness of the VantageScore credit
     score for these consumers. Included in this month’s          To be sure, not only would VantageScore be
     newsletter is a white paper that explores how more           effectively barred from the industry, but based on
     modern modeling techniques like machine learning             how most experts interpret the language, so would
     facilitate more accurate risk assessments. It also           virtually every other potential competitor to FICO –
     shares research on how new account payment                   big and small.
 number of conventionally unscoreable consumers (who   There are significant pockets across the country, but   behavior for unconventional consumers is similar to
 can now be scored with the VantageScore model) also   states located in the South are clearly   conventionally scored consumers. To learn more   Plainly stated, we are seeking competition. And the
 increased to approximately 40 million.  disproportionately impacted.  about the study, be sure to check out the article.  law passed by Congress is intended to bring about
                                                                  just that, giving lenders a choice to use a validated
 By contrast, according to the 2010 U.S. Census, the   Minority borrowers are also deeply affected. Our data   Also, as you may have read in the press, last month   credit scoring model (as required by the law) that
 overall population was about 309 million; of which 30 to   shows that approximately 12.2 million African-  under the direction of then-director Mel Watt, FHFA   could advance their business goals and provide
 35 million were conventionally unscoreable, but could be   American and Hispanic consumers are conventionally   published a proposed rule to implement credit score   greater sustainable homeownership opportunities for
 scored using the VantageScore model.  unscoreable (approximately 2.4 million have scores   competition in the mortgage market as directed by   consumers during a time when it’s critically
 above 620), and approximately 1.6 million Asian and   Congress when it passed Section 310 of the   necessary. This potential win-win has been
 The proportion of the adult population that is   Pacific Islander consumers are also in this category   Economic Growth, Regulatory Relief, and Consumer   completely lost under FHFA’s leadership.
 conventionally unscoreable (but can be scored by   (with more than 0.5 million with scores above 620).  Protection Act (S. 2155). This legislation was signed
 VantageScore) remains stable at nearly 16 percent. This   into law on March 24, 2018. In reality, however, the   Make note: This is only a proposed language, and we
 represents an opportunity to make credit markets more   These consumers, despite the fact that they have   language of the proposed rule misreads the intent of   expect to have the opportunity to more properly
 accessible to additional consumers who have been   relatively low credit risk, face high-interest rates and   the law. In fact, as proposed by the FHFA, it would   structure the rule with the new incoming FHFA
 historically underserved.  other potential adverse terms—if they can even   have the opposite impact, thereby stifling innovation   director. We look forward to working with you towards
 access credit at all. Mortgage lenders, when offering   by perpetuating the status quo wherein a single   that goal.
 While this is perhaps an argument for lenders to use   loans to Fannie Mae or Freddie Mac, are required to   source of supply, FICO, will continue to exploit its
 more inclusive models such as VantageScore, that is of   use the same old pre-Great Recession scoring   government-sanctioned monopoly for years to come
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