The improved FICO 08 credit scoring model promises to deliver a 5 to 15 percent increase in borrowers’ credit scores. But it’s not helping home buyers. According to Eddie Johansson, president of Credit Security Group, a leading nationwide credit analysis and rescoring firm, that’s because the largest sources of home financing, Fannie Mae and Freddie Mac, have not yet approved it.
“When Fannie and Freddie approve it, it has arrived – but not until then,” he said. Neither organization has provided its schedule or intentions for approving the FICO 08-based credit scores available from two major credit bureaus.
Credit scores help lenders determine whether a mortgage loan is approved and the interest rate offered. In general, the higher the score, the easier it is to get a mortgage loan and the lower the interest rate.
Johansson said his analysis predicts the new model – if approved – will have the most impact on the current refinancing boom and mid-to-higher-end home sales. Speaking to 150 bank executives at the Independent Bankers Association of Texas Leadership Conference in San Antonio and to banking educators attending the Financial Literacy Summit at the Federal Reserve Bank of Dallas, Johansson said, “If it’s implemented as expected, it is a great opportunity to boost the housing market.”
Johansson believes the new model will be a more accurate measure of credit risk. “It takes into account more of the borrower’s history and penalizes them less for a single unusual event,” he said. “It also has more score card levels, allowing finer adjustment of credit scores.” He said it will reduce the power of unscrupulous credit collectors too, since a single bad event – reported in error – will have less impact on scores.
FICO 08’s developer, Fair Isaac Corporation, predicts it will help lenders reduce default rates on consumer loans 5 to 15 percent and “deliver a 5-15 percent lift for credit shoppers and nonprime consumers.”
Fannie Mae and Freddie Mac own or guarantee almost 31 million home loans worth about $5.4 trillion, which makes it all the more important that they approve the new score model.
Johansson will be a featured speaker on understanding and improving credit scores for consumers and small business owners at the Austin Money Show September 25-26. Registration is available at www.AustinMoneyShow.com.
About Credit Security Group
Credit Security Group serves consumers and lending organizations nationwide and advises major banks, mortgage lenders and their clients on how the system works and how to use this knowledge to improve scores. CSG conducts seminars and educational presentations to consumer, banking and real estate groups and associations and has offices in Dallas, Houston, Longview and Nacogdoches, Texas.
John Johansson of Credit Security Group, +1-903-759-0040,
Web Site: http://www.creditsecuritygroup.com/
Source: Credit Security Group