NATIONAL HARBOR, Md. -- Credit unions should re-evaluate the credit scores within their portfolios at least annually, according to one analyst.
Sarah Davies, senior vice president of analytics and product management at VantageScore Solutions LLC, said that recent events should alert credit unions to the need for carefully analyzing the risk they have in portfolio. For example, she said that a credit union that set its credit score floor for mortgages at 750 between June 2003 and June 2005 would have about a 0.4% risk of default. However, that same score between June 2006 and June 2008 raised the risk of default up to 2.4%.
In California in particular, the risk of default on a mortgage for credit scores as low as 591 was only about 0.4% between June 2003 and June 2005. More recently (June 2006-June 2008), that rate has skyrocketed up to 10%. Even the top-tier score holders have reached 0.5% risk of default, where they were previously zero.
A representative from a California credit union raised his hand and, noting 12% unemployment in their primary county of service, said they rescore their entire portfolio every quarter. Davies suggested it could be done monthly even in the current environment.
