The Real Credit Risk

Submitted by Rich Toscano on April 18, 2007 - 4:16pm
According to the mortgage news site HousingWire, credit rating agency Fitch Ratings is coming around to the idea that credit scores aren't such a great predictor of who will default on their exotic mortgages. Says the HousingWire article:

After studying the collateral attributes of early payment default (EPD) loans and comparing them to loans that did not default in the first 12 months after issuance, Fitch found that Fair Isaac Corp. (FICO) scores have become less significant as an early default indicator when other high risk loan attributes, such as piggyback second liens or loans with no-income verification, are present.

“While FICO scores continue to be highly predictive measures of relative credit risk for loans with similar characteristics, FICO scores play a lesser role when additional risk layers are added,” said Glenn Costello, Managing Director, RMBS, Fitch Ratings.

“In the case of the 2006 vintage delinquencies, additional risk layers that are factoring into the sharply higher delinquencies include high combined loan to value ratios (CLTVs) and stated income loan programs as borrowers with higher FICO scores tend to be highly levered.”


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Submitted by Bugs on April 19, 2007 - 10:36am.

That's kind of interesting - a credit rating agency that has come to the conclusion that not every decision is a nail in search of their hammer. Maybe there's some hope after all.

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