New Definition of Higher-Risk Consumer Loans and Securities… Formerly Known as Subprime
FDIC RISK-BASED ASSESSMENT SYSTEM FOR LARGE INSURED DEPOSITORY INSTITUTIONS
VantageScore Solutions SVP Sarah Davies provides an overview of new FDIC rules that took effect in April 2013, revising the definition of high-risk consumer mortgages. The new definition updates the old method of using a specific credit score to assign risk, and instead identifies as high-risk those mortgages (other than those qualifying as nontraditional loans) with a probability of default (PD) that exceeds 20% for the 24 months following origination (or refinancing, on refinanced loans).
This paper examines the impact of the new rule on risk managers and loan originators, and addresses a variety of questions concerning its implementation, including the ability to use any credit score model, in conjunction with an appropriate “PD Map,” to evaluate FDIC lending criteria.