We've gathered a number of articles to help you better understand the role of credit scores and scoring in light of the mortgage meltdown. There are many factors that contributed to the problems facing lenders; fear, frenzy and fraud led the way. We hope reading some of these articles will give you a clearer perspective.
Commentary: Beyond Credit Scores, by Dr. Mark Greene, Forbes.com, January 30, 2008"There's an astonishing amount of finger-pointing going on in the financial services industry over the fallout from the so-called 'subprime' mortgage crisis. As Citigroup, JPMorgan Chase, Bank of America and Wells Fargo join the growing rolls of affected financial institutions, we see big investors who blame ratings agencies, who blame underwriters, who blame appraisers, who blame brokers, who turn around and blame the investors."
The Impact of Poor Underwriting Practices and Fraud in Subprime RMBS Performance (PDF), Fitch Ratings, November 28, 2007"Residential mortgage-backed securities (RMBS) issued in 2006 and 2007, backed by pools of subprime mortgages, are substantially underperforming initial performance expectations, resulting in ratings downgrades and heightened risk of principal loss. As anticipated in Fitch’s rating criteria, falling home prices are a fundamental source of poor performance. However, the 2006 subprime vintage performance is remarkable for the magnitude of early mortgage defaults. Fitch attributes a significant portion of this early default performance to the rapid growth in high-risk 'affordability' features in subprime mortgages."
Bricks and Slaughter, The Economist (reprinted on CFO.com), November 9, 2007"A touch-up job for the decorators or months of work for the builders? Like homeowners contemplating renovation, mortgage lenders on both sides of the Atlantic must work out what to do now that two of the industry's supporting joists—funding from the wholesale markets and growth in riskier loans—have cracked."
FICO Best Indicator of Default Risk, Says Fitch By Kristin Campbell, DSNews.com, October 4, 2007"FICO scores continue to be the 'best single indicator' of mortgage default risk, according to Fitch Ratings."
Opinion: Greed, Analytics and the Mortgage Lending Crisis, By Robert Mitchell, Computerworld, September 24, 2007"No one would argue that the mortgage services industry lacks state-of-the-art analytics tools. From automated underwriting software used in loan origination to the statistical modeling programs that value mortgage-backed securities, analytics played a central role in keeping the recent housing boom alive. How ironic that those tools didn’t assess the risks that mattered most."
Sneak A Peek At Your Credit Report, Businessweek, September 17, 2007"The standards for loans and mortgages are getting tougher. Last year, to qualify for the lowest interest rates, consumers needed a credit score of at least 650 points out of a possible 850. Now, credit companies say the bar is up to 680."
A Credit Score You've Earned, By Michelle Singletary, The Washington Post, July 12, 2007"A pending change to a popular credit scoring system is about to make it much harder for people to polish their credit by riding the coattails of someone else's good payment record."
Scoring for success in a turbulent mortgage market - ViewPoints, November / December, 2007"In the midst of a mortgage lending meltdown that continues to spread pain in many directions, what are the lessons to learn about score use? While many lenders use the same tools—such as the FICO® score—to measure risk, their risk management practices that usually make the biggest difference in terms of performance."
Are you worried about your current mortgage? MyFICO.com, Mortgage Crisis Resource Center"Find out if you're one of the millions of U.S. homeowners affected by the current mortgage crisis. If you are at risk, we'll give you the information and resources you need to make smart decisions."
Scoring & Predictive AnalyticsRead more facts and descriptions of Fair Isaac's Scoring and Predictive Analytics.