Statement Of Kathleen Muller

The use of credit scores alone does not ensure that credit remains available to persons who would qualify for a low-interest loan. Lenders should always have multi-criteria that help to balance or offset shortfalls in a person's credit score, which could be reduced by the use of subprime lenders or by a hesitancy to use credit at all. For example, if a customer scores 10 to 25 points less than the minimum score determined to be necessary for loan qualification but he has three or more years on...

Issues Identified In The Mcp Process Of National Concern

As an added step to these projects, representatives from the Reserve Banks that conducted MCPs met to exchange their individual findings and experiences and also to discuss areas of common concern. Among the issues of common concern were access to homeowner's insurance, appraisals in redeveloping communities, steering by real estate agents and the use of credit scoring technology in the mortgage underwriting process. The last is the subject of the first installment, which provides the context...

Statement Of Paul Smith

Actually, our bankers tell us that credit scoring, in fact, gives greater access to mortgage credit rather than creating new barriers for minority mortgage applicants. The use of credit scoring models to better predict whether an applicant might default allows the lender more flexibility in making traditional home loans. During the last 10 years, the banking industry has greatly expanded its efforts to make credit available to less qualified applicants. For example, the housing mortgage...

The Fourth Installment Of A Fiveinstallment Series

Louis Mortgage Credit Partnership Credit Scoring Committee Credit scoring is an underwriting tool used to evaluate the creditworthiness of prospective borrowers. Used for several decades to underwrite certain forms of consumer credit, scoring has become common in the mortgage lending industry only in the past 10 years. Scoring brings a high level of efficiency to the underwriting process, but it also has raised concerns about fair lending among historically...

Statement Of Alexander Ross

The answers may be different, depending on whether scores are to be used in the accept deny context or for placing borrowers in different price tiers. In either case, it is essential that the broker be fully informed as to the lender's underwriting criteria. Further, whenever the scores themselves are affected by the information gathered by the broker, the broker must do as good a job as the lender in documenting the borrower's qualifications. When credit scores are used to accept or deny, the...

Statement Of Peter L Mccorkell

Executive Vice President & General Counsel Fair, Isaac and Company, Inc. During the 1970s and 1980s, credit scoring and automated underwriting became widely accepted for most forms of consumer lending, other than mortgages. Mortgage lenders began using credit scoring much later, starting around 1995. Lenders have widely accepted scoring technology because it allows for expanded lending while maintaining or even reducing loss rates. During the years that credit scoring technology was being...

Statement Of Josh Silver

National Community Reinvestment Coalition All of us have credit scores, but most of us don't know what they mean. If we knew what they meant, would we be more likely to get approved for a low-cost loan The answer is probably, but the disclosures of credit scores have to be meaningful if they are to be helpful to the borrower. Credit scores are numbers ranging from 300 to 800 that are supposed to reflect the risk that we, as borrowers, pose to banks. The higher the score, the less risky we are...

Stanley D Longhofer

Clark Chair of Real Estate and Finance in the Barton School of Business at Wichita State University, where he founded the Center for Real Estate in 2000. He has been involved in local urban redevelopment issues, co-authoring several reports on the viability of proposed redevelopment projects and serving as chairman of a special committee that addressed regional land-use concerns. Before taking the position at Wichita State, Mr. Longhofer was a financial...

Statement Of William N Lund

Maine Office of Consumer Credit Regulation As a regulator enforcing Maine's credit reporting laws, I have tried to learn as much as I can about credit scoring. The ingenuity of the scoring models and the complexity of the applied mathematics are very impressive, and I have no doubt that use of such scores permits creditors to make fast decisions on consumers' applications. However, from the consumer's perspective, I harbor great concerns about the exponential growth in the use of such scores,...

Statement Of Ellen P Roche

Director of Corporate Relations Freddie Mac An increasing number of consumers have benefited from the speed, accuracy and fair treatment provided by the use of credit scoring and automated underwriting over the last several years. In addition to summarizing these benefits, we describe how automated underwriting and credit scoring benefit the consumer during the mortgage application process. American families now enjoy more choice and opportunity in the mortgage market than ever. Home-buying...

Statement Of Michael Lacourlittle

Wells Fargo Home Mortgage strongly believes that credit scoring has provided significant net benefits to both the mortgage industry and the public. Credit scoring has helped to make mortgage credit more widely available to all households, including traditionally under-served market segments, and it has helped to fuel the growth in homeownership that has occurred over the past decade. We welcome open public dialogue about credit scoring and second reviews and, thus, we are pleased to address the...

Statement Of Calvin Bradford

The wide-scale use of credit scoring represents a significant efficiency in the competitive world of mortgage finance. Both the Federal Reserve, by its regulations, and lenders, who use credit scoring, refer to it as an objective process as opposed to judgmental systems. The largest purveyor of credit scores, Fair, Isaac and Company, Inc., has continually maintained that its scores could not be discriminatory because they do not contain race as an explicit...

Credit Scoring Amd Fair Mortgage Lending

Ihe Second Inslalkmenl aF a Five I Filial I men I aeries by ihe Fed-ern Reserve System's Mo-rtgoge Credii PaMnerihip Credii Credit scoring is an underwriting tool used to evaluate the creditworthiness of prospective borrowers. Utilized for several decades in granting certain forms of consumer credit, scoring has come into common use in the mortgage lending industry only within the last 10 years. Scoring brings a high level of efficiency to the underwriting process, but it also has raised...

Statement Of Kevin Stein

The use of credit-scoring models to evaluate creditworthiness has become widespread, even finding its way into the insurance arena, despite serious concerns about the fairness and utility of these models. Credit-scoring models were developed and adopted primarily as a means of helping financial institutions manage credit risk. The California Reinvestment Committee (CRC) believes financial institutions should be working instead to develop and adopt innovative methods of safely extending low-cost...

Final Installment Of A Fiveinstallment Series

Louis Mortgage Credit Partnership Credit Scoring Committee The purpose of the Federal Reserve System's Credit Scoring Committee is to publish a variety of perspectives on the credit-scoring process and to identify areas where the use of credit scores may create disparities in the home mortgage process. The first four installments in this series addressed aspects of the use of credit scores and fair-lending concerns, including the maintenance of scoring models,...

Statement Of Edward Kramer

Financial institutions can have a great deal of control over the practices of their third-party mortgage brokers, especially for compliance with fair-lending laws, pricing policies and the use of credit-scoring models. There is a very close relationship among the traditional financial institutions, mortgage brokers and real estate agents. Brokers know where to get their clients financed, and lenders have a history of doing business with certain mortgage brokers and real estate agents. It is a...

Kathleen Muller

Muller is the executive director of the HOPE HomeOwnership Center in Evansville, Ind. She has been with HOPE for about 12 years. HOPE provides counseling on housing to residents throughout the entire Evansville metropolitan statistical area. For 35 years, HOPE has been providing credit and budget analysis for families to help them determine their ability to buy a house. HOPE also has been certifying their eligibility for special innovative loan packages. During the past year, HOPE served...

Credit Scoring And Fair Mortgage Lending

T he Third insiaikmenl a F a F ive inslal Imeni aeries h y ihe Federal Reserve System's Martgoge Credit Farlnership Credit Scori ng CommiMee Credit scoring is an underwriting tool used to evaluate the creditworthiness of prospective borrowers. Used for several decades to underwrite certain forms of consumer credit, scoring has come into common use in the mortgage lending industry only in the past 10 years. Scoring brings a high level of efficiency to the underwriting process, but it also has...

The First Installment Of A Fiveinstallment Series

Louis Mortgage Credit Partnership Credit Scoring Committee Credit scoring is an underwriting tool used to evaluate the creditworthiness of prospective borrowers. Utilized for several decades to underwrite certain forms of consumer credit, scoring has come into common use in the mortgage lending industry only within the last 10 years. Scoring brings a high level of efficiency to the underwriting process, but it also has raised concerns about fair lending with...

Response Of James Wheaton

Neighborhood Housing Services NHS of Chicago Along with the pressures to increase profitability, comply with complex regulatory requirements, and contend with new and ever more aggressive sources of competition, mortgage lenders like other businesspeople also must manage rapid change in technology. In the lending arena, this change is evident in the approval of loans through automated underwriting, made possible in part by the use of credit scoring. The past few years have seen a dramatic...

Statement Of Stanley D Longhofer

One of the most significant developments in the mortgage market over the last decade has been the formation and growing acceptance of computerized credit-scoring models as a supplement to or a replacement for traditional manual underwriting techniques. Programs such as Fannie Mae's Desktop Underwriter and Freddie Mac's Loan Prospector incorporate performance information from literally hundreds of thousands of mortgage loans to provide a fast, objective and statistically reliable method for...

Statement Of John M Robinson Iii And Ken Dunlap

Review loan files and denials for adequate documentation. Look at all forms, documents and disclosures in the files. Given the increased reliance on automated underwriting, what should lenders do to ensure that their lending policy is strictly observed and that any assistance offered to loan applicants or prospective applicants to improve their credit score is offered equitably Lending policies must be observed to ensure sound financial business decisions and to avoid any potential disparate...

Background On Credit Scoring Issues Examined

To gain an understanding of industry, advocacy group and regulator concerns, the Federal Reserve Banks of Boston, Chicago and San Francisco conducted focus groups in their home cities during the winter of 1998. Committee members developed nine issue statements that encapsulated the findings of the focus groups. 1. In developing credit scoring policies, a lender may neglect to a. Establish clear risk-tolerance policies and consistent guidelines for how scoring cutoffs are determined and loans...

Statement Of Chris Aldridge

Within predominately minority neighborhoods, subprime financing accounts for more than 50 percent of the mortgage lending activity. Separate HUD and Fannie Mae studies have found that many of these borrowers up to 50 percent would have qualified for prime or near-prime financing. This situation has generated a flurry of local lending regula tions, and it has refocused attention on the impact of credit scoring on the availability of prime-rate products in certain markets. The perceived negative...

Statement Of Dan Immergluck

As a researcher and an advocate for fair lending and community reinvestment, I have shared the concerns of many over the ubiquitous use of credit scoring in the mortgage lending process. Many of my concerns have been articulated by others in earlier articles in this series. For example, in the first installment, community reinvestment consultant Cal Bradford points to the disparate impact of credit-scoring systems and questions where the threshold be set in determining whether a scoring system...

Calvin Bradford And Associates

Calvin Bradford has been a fair lending, fair housing and community reinvestment consultant for over 25 years. His firm engages in research, training, program development and evaluation, and expert witness work for government, private industry, public interest and community-based clients. Representatives from each of these organizations received a request to comment on the following statement A variety of research studies, emanating from the Federal Reserve System, other regulatory and...

John M Robinson Iii And Ken Dunlap

Robinson is the audit director compliance officer and Community Reinvestment Act officer for Midwest BankCentre in St. Louis. Mr. Robinson has 16 years of banking experience, with the last 10 in internal audit and compliance management. He is a graduate of Westminster College, of Cambridge University's master's program and of the American Bankers Association's National Compliance School. He is chairman of the Missouri Bankers Association Compliance Committee and a board member and speaker...

Statement Of Christopher A Lombardo

Before addressing a financial institution s relationships with mortgage brokers, we ought to identify three undeniable facts that represent changes in the mortgage business landscape over the past decade. First, financial institutions increasingly rely on fee income. Interest rate spreads are, and are likely to remain, razor thin. Second, automation including credit scoring , securitiza-tion and specialization have revolutionized who does what and how they do it. Third, financial institutions...

Christopher A Lombardo

Lombardo is the assistant director for compliance in the Office of Thrift Supervision s Central Region. Based in Chicago, he manages the compliance examination, community affairs and consumer affairs programs impacting savings institutions in a seven-state area that stretches from Tennessee to Wisconsin. Mr. Lombardo has 18 years of regulatory experience, which includes examination and examination management work with the Office of Thrift Supervision OTS and its predecessors regional office...