Be a voice for model choice

Date: March 01, 2019

One of the tenets of assessing consumer credit risk is that default risk is impacted by economic and demographic changes as well as shifts in consumer behavior. That is one reason why competition among credit scoring model developers is so important for lenders and consumers.

In order to keep pace, as model developers, we must assess market trends and develop the most predictive and inclusive models possible which will in turn allow lenders to keep pace with change. Without healthy competition, there is little incentive to innovate.

With that in mind, I am pleased to share an op-ed I wrote for, a media outlet for mortgage industry policymakers, that posits credit score competition as a tool for the mortgage industry to help shepherd lenders through the next generation of borrowers and credit cycles.

This is an important concept and it is brand agnostic. More competition will force us all to innovate and adapt as the market changes. This is a central theme as we continue to seek adoption in the mortgage market.

You can read the entire article here; however, below is a short excerpt:

A marketplace where lenders can choose among the best models available — and one that is attractive for the next up-and-coming FinTech, start-up, or modeling dynamo — will help shepherd the mortgage industry through the next generation of borrowers.

Consider this: a foundational principle of many incumbent credit scoring models is that a borrower has a lengthy credit history and experience handling a variety of different types of credit accounts.

That fundamentally impacts Millennials and Gen-Zers and puts them at a disadvantage. Data shows that these consumers have focused their credit habits around paying off their student loans and as a result have been reticent about applying for new credit accounts.

What would seem to be a prudent financial decision can cause their credit scores to be lower. But this is a solvable problem.

Model developers and data scientists are always thinking about behavioral changes such as this and how we can more accurately score consumers. Without competition, there is no incentive to innovate and adapt as the market changes.

The backdrop for the op-ed, of course, is that March 21 is the deadline for feedback regarding FHFA’s proposed rule on credit score competition in the mortgage market. The stakes are very high. Market participants are encouraged to provide comments back to FHFA urging decision makers to revise the proposed rule such that it meets the spirit, intent, and language mandated by Congress when it passed Sec. 310 of Public Law 115-174. Section 310 is intended to foster credit score competition and to allow lenders to choose from multiple approved scoring models, provided the models meet the validation and approval process of Fannie Mae and Freddie Mac, in compliance with standards and criteria prescribed by regulation by FHFA.

This may be the sole opportunity FHFA has to create a marketplace in which mortgage lenders and consumers can reap the benefits of credit score competition for the near and distant future.

To submit your feedback, please visit Notice of Proposed Rulemaking and scroll down and click the box that says “Submit Comments.”

We appreciate your support. You’ll find much more information in this month’s newsletter. Included is a data-driven article from TransUnion about the increase in FinTech personal loans and a “Did you know?” that shares how the number of conventionally unscoreable consumers has actually increased. Our “Five Questions with…” guest this month is Michael Bright, the newly minted president and CEO of the Structured Finance Industry Group.


Barrett Burns

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