At the ongoing American Securitzation Forum (ASF) conference being held in Washington, D.C., Equifax Capital Markets announced the addition of the FICO score and other enhancements to its ABS Credit Risk Insight.
Users of the product ABS Credit Risk Insight can now access borrowers' most current FICO score in addition to their VantageScore and Equifax's proprietary Bankruptcy Navigator Index, which projects borrower bankruptcy within the next 24 months of scoring.
ABS Credit Risk Insight allows users to link mortgage loan-level data on the entire population of non-agency RMBS to up-to-date borrower credit data.
"By adding the FICO score, this gives investors more of an understanding of borrower behavior and the securities that they own," said Steve Albert, vice president at Equifax. He added that the FICO score, which Equifax will be updating on its system twice a month, is a highly recognizable and predictive indicator of risk.
In addition to the FICO score, Equifax has added multiple data variables that provide additional detail on all mortgage and home equity payments, owner-occupancy, bankruptcies and performance on past mortgages - information that would help in evaluating the borrower's credit health.
"These types of data are available on a borrower's file," Albert said. However, investors do not have information on other loans such as second liens that a borrower might have. "A borrower might obtain a second mortgage 12 months after the first one, and data on the first loan might not reflect the existence of this second mortgage," he said.
Equifax released a study analyzing the state of non-agency RMBS borrower health from 3Q05 to 3Q09. It found that the rising prevalence of second liens has been underreported. The study showed that from July 2009, 25% of borrowers with current Alt-A loans had closed-end second liens compared with 10% in July 2005.
Addition of FICO
“The exciting thing that Equifax is doing through its Credit Risk ABS Insight is, with the help of the FICO score, to provide increased transparency into the true credit health of the mortgage loans by linking up mort age loan level data to the entire population of non-agency mortgage securities,” said Tom Quinn, vice president at FICO.
According to Quinn, the unique thing about this product is that investors will be able to access a borrower's current FICO score. In the past, investors were only able to access the borrower’s FICO score when the loan was originated and they did loan level data analysis. So they could have been working with a FICO score that was a year or more old, and was clearly outdated.
“What we’ve found, however, is that 27% of the population's FICO scores change by plus or minus 20 points by a three month period, and about 40% of consumer’s scores change by plus or minus 20 points over a six-month period.
Meanwhile, at the ASF, FICO is also announcing an enhanced version of its product. Quinn said that FICO is going to be providing updated research papers on his firm’s most recent re-developed scoring system called FICO 8. “Every couple of years or so FICO redevelops its scores to make them a better risk predictor,” he said.