Credit scoring company FICO has teamed up with data provider CoreLogic on a new credit scoring system specifically for mortgage lenders aimed at giving them more confidence in risk taking and homebuyers more credit for good financial decisions.
The FICO Mortgage Score Powered by CoreLogic uses the FICO model to mine information from a new CoreLogic credit report, much as the old model worked with other data sources to produce the familiar FICO score.
The new system supplements traditional credit data with property transaction data, landlord and tenant information, borrower-specific public data and other alternative credit information that creates a more complete and predictive evaluation of a consumer's credit risk profile to help lenders better manage risk.
Whether the new scoring helps more people get mortgages remains a question. Realtor Marc Cormier, of Keller Williams in Arlington, said the answer depends on who uses it.
"A lender who is offering a subprime type of product might be reassured by seeing that a marginal borrower is keeping up with child support or alimony payments," Cormier said. "A bank, however, is still going to be interested only in the traditional credit on that report."
Cormier said it was not clear whether the goal is to get more people qualified for mortgages or to allow a lender to pick apart a credit history. For example, he said that if a borrower "looked terrific under old FICO but a payday loan pops up on new FICO, would that end the game?"
Bradley Graham, a FICO senior director, said it would not. "A significant portion of people moved up on the new credit score scale and did so with an increase in predictiveness," he said.
"For example, about 23 percent of persons with a credit score below 680 moved above that score, often way above," Graham noted. A higher credit score often means a better interest rate, which in turn can make the difference in getting a larger loan or qualifying for a mortgage at all.
Graham said the average FICO score for a government-sponsored enterprise, or GSE, loan in the second quarter was 757. About 8 percent of this population would score even higher with the new system. Likewise, about 3 percent more borrowers would score above the 715 median FICO score. Also, validation studies run by the company found the scoring was 7.5 times more predictive of loan risk performance than the current models.
Graham said that under the new system, an absence of negative credit information is treated as a positive.
About 25 lenders use the new scoring system, which is not yet approved for Freddie Mac or Fannie Mae loans. These lenders, Graham said, are using the scoring as a key component of decision-making on loans for private lending and for their own portfolios, but he expects use of the product soon will be more widespread.