On May 22, 2013, American Banker conducted a webinar sponsored by VantageScore Solutions focused on “New Credit Risk Realities & Opportunities.” Hosted by Kurt Laughlin, American Banker’s editor-at-large, the webinar featured presentations from Moody’s Analytics Chief Economist Mark Zandi and Sarah Davies, senior vice president of analytics, product management & research, with VantageScore Solutions.
The webinar emphasized how global economic trends and consumer-credit trends in the United States underscore the need for post-recession analytic approaches.
Zandi emphasized that while there are encouraging signs, the pace of the recession recovery is “subpar” when compared with the economic conditions after previous recessions. The unemployment rate and deep severity of the recession are contributing to the tepid recovery, but bright spots include corporate profits and the easing of credit standards in some key areas.
Zandi said that auto originations for subprime borrowers are increasing, and for the first time in his career, “the credit risk guys [in the credit card industry] are telling the marketing guys to make more loans.”
Unlike the auto and credit card markets, the mortgage industry continues to struggle, according to Zandi. He stressed regulatory uncertainty related to qualified residential mortgage (QRM) rules as one of the reasons the private label mortgage-backed securities (MBS) market remains stagnant.
“I really don’t think the credit spigot opens fully until we get the private label MBS market operating again,” Zandi said. “That is only going to happen if we nail down the QRM risk retention rule.”
The good news, Zandi said, is that quality data has never been more readily available and transparent, which allows modelers to develop better techniques for analyzing risk.
The second half of the webinar was dedicated to the VantageScore 3.0 model, the first credit scoring model developed using post-recession data.
“The changed post-recessionary environment inspired VantageScore 3.0,” said Davies.
Davies walked webinar participants through the new model and covered aspects including:
Both Zandi and Davies also discussed the student loan market, which has grown into the second largest credit market behind the mortgage market.
“This is a problem waiting to happen,” said Zandi. “We’re not careful about who is getting the student loan. A lot of the lending that goes through the government isn’t credit-based. The private loan market is OK, but a lot of the $1 trillion in student debt—$800 billion—is government-subsidized.”
Davies emphasized how the more granular data used to develop VantageScore 3.0 is able to assist risk managers in accounting for this trend.
“We’re now looking at student loans individually and uniquely in terms of whether they are deferred or in active payment status,” Davies said. “So we’re running the gamut of where a student might be in the status of that loan as well as looking at government and private loans.”
The webinar concluded with Davies’s discussion of how the VantageScore 3.0 model also takes consumer friendliness in credit scoring to new heights, with special treatment for victims of natural disasters, consumer education concerning reason codes, and other new developments.