Could FICO Scoring Scheme Boost Housing Market?

Does anyone remember how several States improved their student achievement test scores? Dilute the measurements to obfuscate the result, they did. And no one was the wiser.

Now, a new and improved FICO scoring scheme will allow more individuals access to refinancing their present home or buying a new one. The developer, Fair Isaac Corporation, predicts this new analysis instrument will help lenders reduce default rates on consumer loans from 5 to 15 per cent. One hangup - Fannie Mae (FNM) and Freddie Mac (FRE) have yet to approve the new credit score tool. Until they do, the traditional model scores will suffice.

Fair Isaac believes this new system will be a great boost to the housing market. The system takes into account the borrower's history and penalizes them less for a single "unusual" event. It also has more score card levels, allowing for finer adjustment of the credit score. It will also likely reduce the power of collection agencies since a single event will have less significance to the borrower who had that problem.

I believe that current scores, if followed, are plenty liberal to validate one's propensity to pay back a debt.

That said, if the new system is approved by the big boys, plan on a nice bump up in home sales and credit access. Hopefully, we are not planting the seeds for another credit bust down the road.

Comments

[SoCalGal:]

Thomas Smicklas wrote: I believe that current scores, if followed, are plenty liberal to validate one's propensity to pay back a debt.

Why do you believe this? What is your understanding of how FICO scores work? What is your experience with evaluating FICO scores? Where did you obtain your expertise to enable you to evaluate FICO scores?

Sep 14 08:57 AM

[TAS:]

Thirty five years in real estate, including construction, sales, development, rehabilitation, property management, finance to purchase, lease-option, rent to own, Section 8 HUD, larger apartment rehabilitation and lease-up. Other than that, not much.


On Sep 14 08:57 AM SoCalGal wrote:

> Thomas Smicklas wrote: I believe that current scores, if followed,
> are plenty liberal to validate one's propensity to pay back a debt.
>
>
> Why do you believe this? What is your understanding of how FICO scores
> work? What is your experience with evaluating FICO scores? Where
> did you obtain your expertise to enable you to evaluate FICO scores?

Sep 14 09:58 AM

[Karen Consumer:]

Massaging FICO scores matter not in the housing sector. What matters is if they go back to liar loans, which is all I can see them doing, because with unemployment at 9.7%(16%), I don't see a whole lot of people rushing to buy what continues to drop, even at foreclosed prices. Better to wait until mid 2010 before getting all nervous about 'new and improved' FICO scores.

Sep 14 10:10 AM

[hfce354:]

Who is to say that the Big Boys wont just further raise FICO requirements hence neutering the new FICO instrument?

Sep 14 12:52 PM

[Tony Petroski:]

Mr. Smicklas: This is choice!

"Does anyone remember how several States improved their student achievement test scores? Dilute the measurements to obfuscate the result, they did. And no one was the wiser."

I attempted to rent a building to a couple who had lost their home because of foreclosure (read: they did not pay what they said they would). I was surprised to hear they were not upset at this and indeed were looking forward to the day when they would be able to get credit again (three years hence).

My thought was: Can't the lender check into this matter?

Where's Barney Frank? The "Truth in Lending 2009/10" bill will make it illegal to check on the pay patterns of the borrower. There has to be 51% in favor of that.

Sep 14 02:13 PM

[Fabien Hug:]

Being new in this country, I still have problems with your FICO system. Basically, you have two parameters; debt to income ratio and prospects of the borrower (age, education, type of job).
However, it seems to me that the advantage of FICO is that you face much less subjectivity if you can manage to have a good score.
Anyway, I think it is good to "smoothen" blips in a credit history.

Sep 14 10:42 PM

[sickofthehype:]

You must not get out much. I've watched inventory in one of the biggest cities in the US get cut by over 50% since March, and I personally know people who are being continually outbid on properties.

No, it's not 2005 again, but your statement is way off..


On Sep 14 10:10 AM Karen Consumer wrote:

> Massaging FICO scores matter not in the housing sector. What matters
> is if they go back to liar loans, which is all I can see them doing,
> because with unemployment at 9.7%(16%), I don't see a whole lot of
> people rushing to buy what continues to drop, even at foreclosed
> prices. Better to wait until mid 2010 before getting all nervous
> about 'new and improved' FICO scores.

Sep 15 12:23 AM

[billddrummer:]

On Sep 15 12:23 AM sickofthehype wrote:

> You must not get out much. I've watched inventory in one of the biggest
> cities in the US get cut by over 50% since March, and I personally
> know people who are being continually outbid on properties.
>
> No, it's not 2005 again, but your statement is way off..

It depends on where you live. Where I live, more than 100 new REOs enter the market each month than are sold.

Inventory is going up, and banks aren't putting properties up for sale.

You, friend, apparently don't get out much either.

Sep 15 01:48 AM

[Troyhector:]

Defaults from borrowers with good credit contributed to much of the increase in seriously delinquent loans, echoing data from the Mortgage Bankers Association. As the recession claims more jobs, borrowers in good standing are more likely to miss their mortgage payments.
Efforts to modify home loans have been slow and easily outpaced by the number of new delinquencies. In the first quarter, loan companies modified 185,156 mortgages, up 55 percent from the previous quarter. But the number of foreclosures in process increased to 844,389, up 22 percent.

Read More :www.housingnewslive.co...

Sep 15 02:39 PM