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%.
Highlighting California, Davies said 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.
One representative from a California credit union noted the 12% unemployment in their primary county of service and said their rescore their entire portfolio every quarter. Davies suggested monthly rescoring would not be a bad idea in the current environment.