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Thu Mar 6th 12:49 PM | Rating: 0 0
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Are FICO Credit Scores Still Relevant to Mortgage Originators?

Even if you're convinced that FICO rank-orders risk to some extent (which I am), you still have to take two other factors into account:

1) Income and LTV are independent drivers of default. My preference is to incorporate them in "custom" internal scores, but either way you have to deal with debt-servicing ability, negative equity and how it interacts with the implicit "put" the homeowner has.

2) Even after you look at 1), you still have to take into account that rank ordering risk is not the same as predicting loss, given that there are small external factors like the housing market and the general economy. An 800 in a boom does not behave the same as an 800 in a bust.
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