Competition in Credit Scoring is Good for Consumers … and Investors

By: Tino Diaz
Date: January 17, 2018

We read the recent article authored in the American Banker by Joe Smith – a former Regulator in North Carolina. He’s certainly free to impart his “wisdom”, opinion and his passion to sustain the current credit score monopoly (FICO) – but not at the expense of the aspiring homeowner of America.

We’ll lump Mr. Smith in with ALL regulators – big and small – and all those who had direct or indirect responsibility to stop predatory or abusive practices in the marketplace that led to an eventual $7 Trillion loss of homeownership value during the horrible housing crisis. On their watch – and while using the FICO credit scoring model – let us state again – homeowners lost $7 Trillion of aggregate value in their homes.

Now, Mr. Smith, and we suspect others like him, advocate to continue to foreclose opportunity for the aspiring homeowner of America by perpetuating the use of this same monopoly credit scoring model.

Here are the facts. Using the monopoly FICO credit scoring model, we have reached a 50 year low in the homeownership rate in America. The Harvard Joint Center for Housing estimates that approximately 85% of new household formation in the next 20 years will be people of color. We are pretty certain a great share of those aspiring homeowners don’t have big investments in stocks – bonds – 401K’s – or other generational wealth. They need every available resource and tool available to access the American Dream of sustainable homeownership. That might have to come from new – more modernized credit scoring models – like VantageScore.

Let us remind everyone reading this article that because of the new “ability to repay” law, no real estate loan can be made in America unless it is determined the consumer has the ability to repay the loan. Additionally, let us remind everyone reading this article that mortgage servicers only make servicing fee income when a borrower makes their monthly payment. To suggest that VantageScore would be used to make loans violating the “ability to repay” law and where the borrower couldn’t make their monthly payment is ridiculous.

The AHA will demand fair opportunity for consumers. The AHA mission is to “protect and promote sustainable homeonwership for all segments of America.” It’s obvious after reading this recent article that certain people wish to cast a vote against competition that just might open sustainable homeonwership opportunity for a whole bunch of capable borrowers….in fact, as we stated, as many as 85% of them would likely be minorities.

Please put us in a different column. We’re NOT against competition. Especially if it means delivering homeownership opportunity in a safe and sound manner through more modernized credit scoring models.

We’ve seen the fruits of the current monopoly model. It was used before when homeowners lost $7 Trillion of value – and it’s been used ever since to get us to the lowest homeownership rate in 50 years.

Time to try something new folks!

Mr. Smith and people like him can stand in the way of progress if they like….and get run over by the tsunami of need from aspiring homeowners. These homeowners are of a very different demographic than the old monopoly system was built to grade and score. And they are not going to tolerate a rigid monopoly in the credit scoring market when a better model has been created to fuel an expansion of sustainable homeownership opportunity.

Some appear perfectly happy to impinge competition in credit scoring models and the use of VantageScore. We’re in the other camp, because we believe it will lead to more sustainable homeownership opportunity for the aspiring homeowner – again we reiterate – likely 85% of whom will be minorities.