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The Importance of Inclusion

Dear Colleague,

As circumstances surrounding COVID-19, commonly known as the Coronavirus, are continuing to develop each day, VantageScore extends our heartfelt thoughts to those impacted by this pandemic. In this month’s Score newsletter you can find information for both consumers and lenders regarding the financial options available for those who may experience financial distress due to COVID-19.

As history has shown, sometimes looking to the past to prepare for and fix our future is how we get through these trying times. To that end, we also wanted to take a moment to reflect on the past and find inspiration in what we do – as credit score model developers but also as one of many architects who help construct the “American Dream” for others.

One of the great pleasures of this job is to go to work every day knowing that our success will contribute to a better life for others. And because of that, our team is inspired to grow the use of our credit scores and make the credit market more inclusive.

A few weeks back, I was honored and humbled to be invited to the annual Freedman’s Bank Forum. Hosted by the United States Treasury Department, the Forum is “a tribute to the Freedman’s Savings and Trust Company, which was created to provide economic opportunity for newly emancipated African-Americans more than 150 years ago…The Freedman’s Bank Forum aligns with the historical significance of the bank and its original mission – to promote economic integration and financial inclusion.”

Regretfully and tragically, the Freedman’s Bank was unable to complete its mission and, in fact, had a catastrophic impact on African-Americans when corruption and outright fraud, collapsed the bank in 1874,along with its $3 million of savings from more than 60,000 African-Americans and organizations. After the collapse, there was no banking system for people of color.

The failure of Freedman’s Bank is a stark reminder that we cannot check the box, nor consider the job done even when we’ve achieved some modicum of success towards financial inclusion. There is, unfortunately, much to be done to deliver affordable, mainstream financial services to underserved populations.

The Freedman’s Bank Forum was hosted in the “Cash Room” of the U.S. Treasury and, after a number of speeches from the heads of all the major financial regulators, I was privileged to deliver a presentation for the National Credit Union Administration’s minority depository institutions.

The minority depository institution, including and especially a large number of credit unions (500), serves a unique and critical role in extending affordable and inclusive financial services to minority populations that have been historically been underserved. Likewise, these populations have also been underserved by the credit markets and many of them have either damaged credit health or limited to no credit histories at all.

In the presentation I discussed how credit scoring works and described the broader ecosystem in order to dispel misconceptions and confusion. Secondly, I addressed which consumers are and are not scoreable and why. Our discussion examined the demographics of the conventionally unscorebable population and discuss strategies for inclusion. If you’d like to check out the presentation for yourself, you can view the slides here.

It was truly an honor to be invited and present during such an important day.

To learn more, I strongly encourage you to check out a PBS documentary that covers the history of Freedman’s Bank called, “Boss: The Black Experience in Business”.

The documentary references a new museum in Beaufort, South Carolina, documenting this chapter in American history. Visiting it is now most certainly on my bucket list.

Stay healthy and safe.

Barrett Burns

CEO and President, VantageScore Solutions, LLC

VantageScore statement on COVID-19

VANTAGESCORE® SOLUTIONS ISSUES STATEMENT ADVISING CONSUMERS AND LENDERS ABOUT OPTIONS AVAILABLE TO MITIGATE THE IMPACT ON CONSUMER CREDIT SCORES BY THE FINANCIAL HARDSHIPS DUE TO THE COVID-19 (CORONAVIRUS) PANDEMIC

March 13 - VantageScore Solutions, LLC, developer of the VantageScore® credit score model, issued the following statement today with regard to the impact on credit scores by financial hardships due to the COVID-19 (Coronavirus) pandemic:

We, at VantageScore Solutions, are actively monitoring the COVID-19 (Coronavirus) pandemic as it evolves, and we express our deepest sympathy and concerns to those families and individuals who have been impacted. We also remind lenders and consumers of their options and the tools available to mitigate the impact on credit scores due to the financial hardships associated with this crisis.

As a first step, consumers who are having financial issues arising from this crisis should contact their lenders or servicers (i.e., the company that sends their monthly statements). Lenders may have several options for helping consumers cope with a variety of COVID-19-related financial hardships.

These options may include forbearance programs, such as deferred payment plans, as well as the opportunity to report the consumer’s account to the credit bureaus under special natural disaster reporting codes. There are several ways in which these options could impact consumers’ credit scores when calculated using VantageScore models. Please note, however, other commercially available models may deal with these situations differently.

Forbearance/Deferred Payment Plans

Consumers and lenders can pursue a loan “forbearance,” which can provide assistance to cope with a temporary financial hardship. Forbearance is a period during repayment in which a borrower is permitted to temporarily postpone making regular monthly payments. The debt is not forgiven, but regular payments are suspended until a later time. The consumer may be allowed to make reduced payments, interest-only payments or no payments. For example, a deferred payment plan allows a borrower to temporarily pause making payments and restart at some specified time in the future.

Impact on a consumer’s VantageScore credit score:  A loan placed in a deferred payment or forbearance plan will not result in a negative impact. Rather, the loan will continue to positively impact one’s credit history and credit score, while the related balance and payment obligations under the plan will not be considered for purposes of a credit score calculation during the forbearance period. The net impact to a consumer’s VantageScore credit score is “set to neutral,” so the consumer’s credit score is not harmed. However, any payment and delinquency history related to that loan prior to the forbearance plan would remain unchanged and therefore continue to be included in the consumer’s credit score calculation.

Natural Disaster Coding

The credit reporting systems and standards also allow lenders to accommodate situations where consumers’ ability to meet their debt obligations are adversely affected by circumstances that are beyond their control, like a natural or “declared” disaster or, in the case of COVID-19, a public health emergency.

At the request of consumers, lenders can add a code to the consumers’ accounts or “trade lines” which indicate that a customer or borrower has been “affected by a natural or declared disaster.” Lenders can use this code at their discretion even in cases where a particular situation has not been designated as a natural disaster by the federal government. If a lender uses this code, a notification about the disaster or other event will appear with the trade line for the customer’s account. It is up to the lender to insert the code initially and to remove the code after the event has concluded.

Impact on a consumer’s VantageScore credit score:  When accounts are reported with a natural disaster reporting code, information that would normally have a negative impact on a consumer’s credit history is instead “set to neutral” and thus is not included when calculating the consumer’s credit score.  Positive information already in the file, such as the account’s positive payment history, is retained.

The net impact is that a consumer’s VantageScore credit score will not go down, either because negative information is neutralized because of the natural disaster code or because the account is completely removed.

Loan servicers with questions should connect with their credit bureau representative to understand how to report natural disaster codes on their customers’ accounts to prevent their customers from being unduly penalized in these difficult times.

 





VantageScore videos and podcasts

VantageScore is proud to share with you a special series we produced, talking to real consumers about real credit and financial issues. The series “American Dreams” is a dream we’ve also had to communicate the everyday issues that impact Americans as they pursue their own goals – whether it be to own a home, buy a car or take out a loan.

We hope you enjoy their stories and we urge you to share them.

https://www.youtube.com/vantagescore 

Also, please take a moment to tune-in to the newest installment in our very own “VantageScore Podcast” series. Our latest interview is with Adam Levin, co-founder of Credit.com and founder of CyberScout.com.

In our discussion with Adam, we learned about the most recent security risks online and how to avoid them. As the world undergoes a digital conversion in all industries, this podcast is an especially important listen, so we can all prepare for the issues that face the financial online domain.

You can check out our podcast on the following platforms:

iTunes

GooglePlay

Spotify


DID YOU KNOW? Consumer access to credit scores can boost the lending ecosystem

According to a recent Javelin study, 71% of consumers who check their scores at least once a month perceive that they have control over their day-to-day finances, compared with the roughly 54% of consumers who never check their score. Those who have more credit score-awareness also are more likely to have positive views of their financial situation, e.g., they are better able to save for larger bills and can absorb a financial shock (such as what is occurring recently with the COVID-19 health crisis).

To get a better understanding of how credit score-awarenss can help both consumers and lenders, be sure to watch this webinar presented by Javelin Strategy, TransUnion and VantageScore. Hear from experts on the latest data that shows how financial literacy can improve consumers’ overall financial health, thereby expanding the pool of potential borrowers and strengthening the lending ecosystem overall.

You can view the archived webinar here: https://register.gotowebinar.com/recording/321808766781096451 

5 Questions with Mark Alston

Mark Edward Alston is owner of Skyway Realty and Alston & Associates, a community-based, full service mortgage company. As a broker himself, Mr. Alston has more than 30 years of experience in the industry and has presented home-buying informative lectures across the country for more than 20 years. He is also known to advocate for policies and laws that help rebuild local communities by empowering consumers to acquire and maintain property ownership.

Mr. Alston is the current Chairman of the National Association of Real Estate Brokers (NAREB) Political Action Committee as well as the 1st Vice President of the California Association of Real Estate Brokers. Mr. Alston has served as President of the Consolidated Board of Realtist of Los Angeles as well as Chairman of NAREB’s Mortgage Banking Committee and President of its Los Angeles chapter.

1.     How did the National Association of Real Estate Brokers (NAREB) come about and how did “Realtist” became the professional designation of your members?

The National Association of Real Estate Brokers was birthed out of need and desire. The climate in the country was one of exclusion with regard to Black housing, Black home ownership and Black professional affiliation. The National Association of Realtors (NAR) did not accept Blacks as members. There was little or no housing available for Black veterans returning from World War II. The practice of redlining and private covenants which banned Black occupants was wide spread throughout the country. In this environment, 12 Black real estate brokers met in Tampa Florida in the summer of 1947 and formed the National Association of Real Estate Brokers (NAREB) and set the motto ” Democracy in Housing” as both a motto and mission statement.

The term “Realtist” was chosen to define membership in NAREB. Realtist is an action word. Real property practitioners with a real mission to improve life for both Black consumers and Black professionals.

2.     After the Great Recession of 2006-2013 does your research and data suggest that aspiring homeowners have the same passion for homeownership as in previous decades?

The Great Recession of 2007-2013 has left a devastating impact in the Black community. The most recent Home Mortgage Disclosure Act data (HMDA) shows in the top ten mortgages lenders, Black applicant approval rate is as low as 29% and Black applicant denial rates are as high as 58%. There were 983,538 Black borrower applications that resulted in only 293,445 new mortgages.  690,093 Black applicants were not approved either by denial or fall out. 

When the success ratio is this low, it affects the consciousness of the community. Stories of denial run from friend to family and we stop trying rather than take a chance at failure. To answer the question: “do aspiring homeowners have the same passion as in previous decades?”, the answer is a resounding “yes.” The passion has been hidden by a blanket of disappointment and negative results, but lays in wait for better times and opportunity.

3.     The Black homeownership rate has fallen to its lowest level since the Civil Rights Act of 1964. What do you feel are the keys to reversing this trend?

The key to reversing the trend of low Black home ownership rates would be a return to policies that encourage home ownership and eliminate disparities that tend to have racially affected impact. The use of old, out dated credit models, the reluctance to include new and more inclusive alternate credit platforms that are more representative of the communities we serve, the elimination of disparate policies such as Loan Level Price Adjustments (LLPA’s) which when initiated in 2008, at a time when both Fannie Mae and Freddie Mac were in danger of failing, have served their purpose and now serve to overcharge lesser qualified borrowers and reward higher qualified borrowers. This stands in the face of their original mission statements to provide mortgage liquidity, stability and affordability. 

In 1938 when Fannie Mae was created as part of President Roosevelt’s “New Deal”, White home ownership was at what was considered disastrous 50%, Black home ownership has never reached 50%, the high point being 49.6% in 2004. In a country where the average Black family earns $60.01 to ever $100.00 earned by White families, the average White net worth is 10 times that of the average Black family, housing finance policy designed to charge approved borrowers more based of lower down payments and lower but approvable credit scores is a racially disparate policy – whether it was intended to be or not, and retards home financing opportunity.

 4.     What changes should the mortgage industry including, FHA, Fannie Mae and Freddie Mac, prioritize over the next 12 months?

FHA should address the monthly mortgage insurance fee charge – the congressionally mandated 2% reserve requirement. According to FHA’s November 15, 2019 report, the current reserve is 4.84%. FHA should immediately reduce its monthly fee which, in turn, would increase affordability. 

Fannie Mae and Freddie Mac should eliminate collecting loan level price adjustments in both mortgage and private mortgage insurance applications which would help to level the playing field in home finance opportunity.

5.     Is mortgage lending keeping up with the demand in urban markets of America?

Mortgage lending is not keeping up with the demand of the urban market in America. There is a shortage of loan officers and mortgage providers who look like the communities they work in. The apathy of disconnected lending professionals is represented in the high fall out and low approval numbers. Major bank and lenders need to reopen broker channels to reach qualified but reluctant would-be borrowers.   

 

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