Alternative credit scoring is a pretty big buzz term going around the industry these days.
The most recent HousingWire cover story revolves, and goes much deeper (paywall), into this very same issue.
On a related topic, the Progressive Policy Institute recently held a luncheon, see the video below, with experts to try to find if efforts to move past FICO would really help served underserved markets.
Will alternative credit scores really help close more mortgages?
The answer is not conclusive.
“I think this is what most consumer advocates are interested in, is that it will potentially expand mortgage markets,” said Ann Schnare, president of Schnare Associates and former senior vice president at Freddie Mac.
“The problem with that is most of them have scores that are relatively low. If you look at the borrowers that might actually be potential candidates for a mortgage the number is roughly around two million,” Schnare adds. “And they got that number by eliminating borrowers with FICO Scores below 620, by eliminating people under 25 or over 70, by eliminating any existing homeowners.”
“So, two million seems to be an agreed upon figure, but the problem with that is it is also too high,” she concluded.
Fellow panelist Tom Parrent, a principal at Quantalitic agreed the number of those who would be able to handle a mortgage is much lower.
“Well, in any given year what we found was that number is under 50 thousand people out of the two million that you would expand, you’d only get an additional 50 thousand or so, who would be likely to want a mortgage and be able to obtain one with the other underwriting standards,” he said.
“We happen to think that it is a good idea for people to have a path into the mainstream financial system with accurate transparent scores,” he said. “But, what’s not clear to us at all is that this would make much of a difference in the mortgage market.”
Full panel video available here.