gemonk21

The Smoking Gun of the Credit Crisis: FICO

I have been a mortgage underwriter for many years. FICO is a big issue, but even more so is AUS - the automated underwriting sysytems used by the GSEs. Fannie uses Desktop Underwriter (DU), Freddie uses Loan Prospector (LP), and others have their own in-house systems modelled on the GSEs.

Once the AUS made a buy decision, it was virtually impossible to overturn, even if you knew there was something not right about the findings. Between 2000 and 2006, underwriting standards became slacker and slacker, and a higher and higher proportion of loans were approved by AUS.

I also underwrote sub-primes for the wall street investors. They did not ever want to hear "this is not a good loan". they bought all this trash knowing it was trash - "the model accounts for fraud and lower credit quality" they said repeatedly. Whistling past the graveyard...