Mortgage Risk Assessment – Will Technology Prevent Another Mortgage Crisis?

Call me old-fashioned, stick in the mud, whatever euphemism you care to throw at me, but I’m uneasy about the fact that computer logic affects my ability to obtain lender financing.

© benchart –

CoreLogic, the logic and information systems giant, recently announced a joint venture with FICO, to provide a new risk assessment tool – the FICO® Mortgage Score Powered by CoreLogic®.

The new “mortgage credit score” is expected to lessen risk for lenders by combining information derived from traditional credit repositories with unique data from CoreLogic’s CoreLogic CoreScore™ , to create a more complete profile of a consumer’s credit risk.

CoreLogic maintains that their model, which has been created to apply specifically to mortgage loan risks, is more accurate than currently available models. Why the need for a new analytical report?

FICO recently released a quarterly survey, done by the Professional Risk Managers’ International Association (PRMIA), which showed that about 75% of bankers surveyed expected their delinquencies to either increase or stay the same over the next six months.

Tim Grace, Senior VP of Product Management at CoreLogic said:

“In this complicated operating environment, lenders are increasingly turning to new data sources to help better interpret a consumer’s credit risk, so that more loans can be approved while mitigating potential losses. Today, we are announcing an industry first—a new composite, multi-bureau credit score generated from both traditional credit data and CoreLogic supplemental data, expanding the applicant credit spectrum by including property transaction data, landlord/tenant data, borrower-specific public data, and other alternative credit data. For a top-20 lender processing 300,000 applications a year, adopting this new score could translate into 3,900 more loans approved every year along with a net financial benefit of $14.5 million. As such, it not only provides a more complete and predictive evaluation of a consumer’s credit risk profile, but it can empower lenders to better mitigate risk and approve more loans for more consumers.”

“The new FICO Mortgage Score is designed especially for prequalification and origination and delivers increased insight when it matters most,” Joanne Gaskin, senior director of Scores product management and mortgage practice leader at FICO, stated.

“For many lenders, the increased predictive lift will translate into thousands of new mortgages, and the avoidance of millions of dollars in bad loans and associated costs. This innovation is a win-win for lenders and consumers alike.”

While automating the credit decision process may be necessary, am I being sentimental in saying that there is no replacing the human mind when it comes to determining a credit risk assessment? Computer models cannot replace human reasoning. Or am I wrong?

Had this new technology been available before the recent sub-prime lending fiasco would it still have happened? I believe yes, but that’s a story for another blog post.

Chime in, please mortgage professionals. What is wrong with my logic?