The July issue of the American Bankers Association’s ABA Banking Journal included a major feature, “Broader Reach, Tighter Regs,” which makes the case that “advanced data analytics and business approaches help banks through a challenging credit market.”
In particular, the article cites new regulations such as the CFPB’s “ability to repay” rule and other new mortgage regulations either in place or pending that are challenging the current loan processes at mainstream credit granters.
The article quotes one mortgage lender as saying, “The No. 1 pressing issue right now, as we’re looking at credit risk management, is that we’re really diving into regulatory risk responsibilities. That’s the driving force right now. Some of the executives here … are combing through sheets and sheets of mortgage servicing regulations that are coming along today … With the new rules on qualified mortgages, we are very cognizant of … [borrower’s] ability to repay. What’s the distribution of their current loans, such that, do they have credit to originate a mortgage and enter the purchase market, especially the younger demographic?”
The developers of the VantageScore 3.0 model anticipated the need for a more granular interpretation of an applicant’s credit profile that takes into account a 360-degree viewpoint.
The article also points out that:
“In nuts and bolts terms, that means being able to distinguish between a first and second mortgage, between a line of credit and a loan, and between different types of installment loans, including student, auto and personal, as explained by Barrett Burns, president and CEO of VantageScore Solutions.
“’There are some new tools, particularly data-related,’ [Burns said]. ‘The three major credit reporting companies have all been able to develop ways to have more granular data … Our new model is based on all that post-recession data, which really separates out a lot of the products and their predictiveness-of-default rates,’ he says.”
Download a PDF of “Broader Reach, Tighter Regs” from VantageScore Solutions’ website.