Since the revolution in modeling residential-mortgage risk in the U.S. began in late 1995, proprietary credit and mortgage scoring systems have become pervasive in global mortgage products, with major originators fusing such technology into their underwriting processes. In 1998, when Standard & Poor's introduced its first version of a modeling software known as LEVELS(tm), only 50% of the prime mortgages submitted for ratings included a credit score on the tape and less than 30% of the subprime mortgages incorporated a credit score in their underwriting data file. By the end of the second quarter of 2002, virtually 100% of the newly originated mortgages submitted for ratings incorporated credit scores, and in some cases mortgage scores. All major mortgage underwriters in the U.S. blend some form of credit scoring and/or mortgage scoring algorithm in the process of qualifying borrowers and identifying the appropriate mortgage products by borrower characteristics and credit experience. This rapid and extensive growth in scoring has had a significant impact on the U.S. mortgage-backed securities market. The global trend appears to support similar developments by the local financial institutions and U.S.-based companies.
Refining Mortgage Risk Categories