I started reading the Focus Report [Oct. 13 issue] guest opinionarticle entitled “How to Use the Best Predictive Tools to ReviveMortgage Lending” by Joanne Gaskin of FICO. I hoped I would learnmore about FICO's tools and how my credit union ($3 billion inassets, $900 million mortgage portfolio, approximately the 30thlargest CU in the country) can improve mortgage lending.

I then realized just how little FICO understands the creditunion business. When Gaskin wrote, “We found that a typical creditunion originating 500,000 mortgages a year using a score cutoff ofabout 620 could save $62 million more than they could be using thegeneral-risk score,” it illustrated how much FICO is out of touchwith our industry.

Five-hundred thousand mortgages a year? Did she mean the typicalmega-bank? As I said, we're about the 30th largest credit union inthe country. In our primary market, we're the second largestmortgage lender on the basis of number of loans closed per month.We funded $450 million in mortgage loans last year-a record forus-which equated to about 3,000 loans.

Her example of saving $62 million a year is also confounding andmisleading. That equates to $124 per loan in terms of futurelosses. On an average of $150,000 per loan, that translates toabout eight basis points of improved loss ratios. For many creditunions, including ours, that's probably close to the current lossratio for the portfolio. For credit unions in the sand states,they'd love to have that kind of performance. However, her exampleassumed an industry standard of $50,000 for each loan that goesbad. I have seen no statistics to refute this; I can tell you ourtypical loss on a first mortgage is about $20,000 when weforeclose. Booking a loan today at lower home prices, lowerinterest rates and improved underwriting should not result in a$50,000 loss at foreclosure. At least I hope not.

It's no wonder that consumers question the accuracy of FICOscores. It also bears mentioning that many of my peers arescratching their heads, wondering why their portfolios are doing sopoorly having utilized a FICO score along with custom scores andbankruptcy scores.

We don't use the auto loan or mortgage loan-enhanced scores asmentioned in Gaskin's article because quite frankly, we don'tbelieve in them. Our auto portfolio, while performing fairly well,has had more than its share of losses on loans when our FICO scorewas 650, but the dealer's fancy auto-enhanced FICO score indicatedthe borrower to be more like a 720. In the end, we find theauto-enhanced score to be worth no more than the paper on whichit's printed. I also question the value and applicability of themortgage-enhanced score. FICO, along with the credit bureaus, isgoing to have to do a better job of educating and selling lenderson the value of scoring without pie in the sky claims.

Bill Vogeney
Senior VP/Chief Lending Officer
Ent FCU
Colorado Springs