Collateral Intelligence has signed on with FICO to provide valuation and support for the credit risk provider’s analytic solution that predicts borrowers who are at risk of strategically defaulting on their mortgages.
As part of the agreement, Collateral Intelligence and Collateral Analytics will provide valuation and forecasting automated valuation model analytics to support FICO’s analytic offering.
FICO, CA and CI came together following extensive testing of the Collateral Analytics AVMs that incorporate additional data and market analytics from CI, all of which help support the FICO Strategic Default Custom Analytic.
“We are pleased to have Collateral Intelligence and Collateral Analytics actively engaged with FICO in providing our clients with analytic insight into this new consumer behavior and supporting the ongoing research and validation of our predictive models,” said Joanne Gaskin, senior director of scores and analytics at FICO.
During testing, FICO researchers found that, as a group, strategic defaulters tend to be more savvy managers of their credit than the general population with higher FICO scores, lower revolving balances, fewer instances of exceeding limits on their credit cards and lower retail credit card usage. This indicates that strategic defaulters display a different type of credit behavior than distressed consumers who miss payments.
Recent FICO research shows that home price depreciation by itself is not a very powerful predictor of mortgage nonpayment. The incidence of borrowers who were 90 or more days delinquent with the largest drops in home prices was 7.5%, while borrowers who lost the least value was 3.7%.
FICO said it usually expects the range to be 30 to 50 times more likely for the most risky borrowers to end up seriously delinquent than the least risky ones.
However, through the use of custom analytic models that CI provides, FICO Labs researchers have demonstrated the ability to identify borrowers who are over 100 times more likely to default strategically than others.
Experts say continued weakness in the mortgage sector is driving greater numbers of strategic defaults. A recent study from the University of Chicago Booth School of Business indicates that 35% of mortgage defaults were strategic, up from 26% that occurred the prior year.
The FICO Labs team built the strategic default analytic to rank-order both current and delinquent borrowers by their likelihood of strategically defaulting on their mortgage. The custom models achieved excellent separation of borrowers into high versus low strategic default risk bands.
FICO is consulting with mortgage lenders to provide custom analytic solutions for their mortgage portfolios, allowing them to take preventative action and reduce the costly impact of strategic defaults.
“This is an exciting opportunity for Collateral Intelligence,” said CEO Mark Sennott. “This is another example of how the use of better local data is changing the way mortgage lenders identify collateral risk.”
