There are at least 50 different credit score models around, said Sarah Davies, SVP of analytics, product management and research at VantageScore Solutions LLC. “But, and this may sound strange coming from someone who actually designed a credit score, we do not think of credit score values as the tool that determines risk.”
Davies emphasized that “rather than the credit score number itself, it’s the underlying probability of default represented by the familiar three digit number that is the real measurement of risk and this risk changes over time due to fluctuations in systemic risk.”
A credit score is just one of the tools available today to servicers, subservicers and special servicers. As important, she said, is that the mortgage marketplace has changed considerably due to the recent foreclosure crisis and economic downturn.
In her view servicers should remember that the credit scores in use were designed for a marketplace that to a large extent no longer exists and needs to be updated or restructured to reflect the new reality.
Servicers need to work proactively with subservicers to ensure various other factors—such as consistent positive or negative borrower behavior—are crucial to any form of credit risk assessments.
“Servicers have to look at all the information holistically as a whole picture,” said Ed Fay, founder and CEO of Fay Servicing. “You do not get the data borrowers give you at face value but also inquire, analyze, dig deep into the information, the cash flow, not just income ratios.”
For example, looking at the correlation between cash flow and lifestyle or how a borrower spends can be crucial to assessing and also educating borrowers so they understand if and how they can maintain their mortgage loan, he said.
Today’s borrowers are different, Fay said, it may sound like a joke, but there is truth in the saying: “The dream of the old generation was to pay off their mortgage. The dream of the new generation is to get one.”