Your SlideShare is downloading. ×
0
Understanding Credit Reports & CreditScoringMarch 2013                          ©2012 Genworth Financial, Inc. All rights ...
Overview & Course Objectives Credit Reports & Scoring ‫‏‬ Credit Reports & Scoring is designed to help individuals underst...
Credit Report Types A credit report is a record of the borrower’s credit activities. There are three types of credit repor...
Credit Report Basics •   WHERE IS THE BORROWER’S CREDIT INFORMATION LOCATED? Creditors voluntarily report the information ...
Credit Report Basics WHO PREPARES THE CREDIT REPORT? ‫‏‬ Consumer reporting agencies prepare credit reports. These agencie...
Credit Report Basics •   WHAT DETAILS DOES THE CREDIT REPORT INCLUDE? For each debt listed, it provides the:         Cred...
Credit Report Basics•   Free Personal Credit ReportThe Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit•T...
The Credit ReportSample‫‏‬Credit Reports & Credit Scoring
Sample Credit Report LegendSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index....
Sample Credit Report LegendSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index....
Sample Credit Report LegendSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index....
Sample Credit Report Legend                                       Sample credit report retrieved with permission from Cred...
Sample Credit Report LegendSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index....
Sample CREDIT REPORTSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCre...
Sample Credit ReportSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCre...
Sample Credit ReportSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCre...
SAMPLE CREDIT REPORT     Verify the borrower’s PITI payment as the payment listed may only be P&ISample credit report retr...
SAMPLE CREDIT REPORT          Review who is reporting the tradeline information. Some investors may           require a mi...
SAMPLE CREDIT REPORT     Remember to include all collection amounts that are required to be paid in                       ...
SAMPLE CREDIT REPORT    Verify if the Inquiry resulted in new debt and re-calculate the total debt ratio                  ...
SAMPLE CREDIT REPORT                     Review for all Public Records and apply the appropriate credit                   ...
SAMPLE CREDIT REPORT                                        Have the required Fraud reviews been ordered?Sample credit rep...
SAMPLE CREDIT REPORTSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCre...
Sample Credit ReportSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.html   ...
Sample Credit ReportSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCre...
Credit Report Basics & Example •   HOW LONG DOES INFORMATION REMAIN ON A CREDIT REPORT? General Information will date back...
Credit Report Basics & Example   CONSUMER DISPUTES (FCRA)   •        Changes to credit data must actually take place at t...
Credit ScoringModel, Score Ranges‫‏‬Credit Reports & Credit Scoring
Credit Scoring Basics •   WHAT IS A CREDIT SCORE?      A Statistical Model      A Predictor of Future Performance Based ...
Credit Scoring Basics •   Who Provides and Uses Scoring? •   FICO The most common credit score in use was developed by Fai...
#1 Poll QuestionCredit Reports & Credit Scoring   30
Credit Scoring Basics Benefits of Credit and Mortgage Scoring ‫‏‬        Scoring enables lenders to:        Achieve cons...
Credit Scoring Basics-FICO Model  Payment information                                                          Travel an...
Credit Scoring Basics-FICO® Model Sample Credit Report- Reason Codes                                                      ...
The Different FICO® Scoring Models Standard Models ‫‏‬                                                  Credit Inquiry Imp...
The Different FICO® Scoring Models •   30-Day Buffer:     No Auto or Mortgage inquiry within 30 days from the current inq...
Legal RequirementsFact Act, Notice to Home Applicant, RBR Notice‫‏‬Credit Reports & Credit Scoring
Legal Requirements of the FICO® Score –The FACT Act•What must be disclosed or provided to the Consumer?•     Consumer’s c...
Credit Score Information Disclosure •   http://www.bankersonline.com/tools/credscordiscl.doc •                            ...
CREDIT REQUIREMENTS                                                    The Federal Reserve Board and Federal              ...
Risk-Base Pricing (RBP) Notice  http://www.icba.org/files/ICBASites/PDFs/FinalRulesonRiskBasedPricing.pdf    http://www.sc...
Credit UsesAgency Requirements‫‏‬Credit Reports & Credit Scoring
#2 Poll QuestionCredit Reports & Credit Scoring   42
Fannie Mae Credit Requirements with DU®                                  https://www.efanniemae.com/sf/technology/ou/du/pd...
Fannie Mae Credit Requirements with DU®DU Credit Score Requirements‫‏‬Credit scores are not an integral part of DUs risk a...
Fannie Mae Credit RequirementsRepresentative Credit Score‫‏‬    B3-5.1-02, Determining the Representative Credit Score for...
Fannie Mae Credit RequirementsWhat is the representative score?‫‏‬Credit Reports & Credit Scoring     46
Fannie Mae Credit Requirements with DU®2013 Selling GuidePart B, Origination Through ClosingSubpart B3, Underwriting Borro...
Fannie Mae Credit Requirements with DU®                                  https://www.fanniemae.com/singlefamily/originatin...
Fannie Mae Credit Requirements with DU®B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-‫‏‬establi...
Fannie Mae Credit Requirements with DU®Credit Processing‫‏‬    – Authorized User Accounts: DU considers authorized user ac...
Liabilities Calculated in DU®The total monthly obligation is the sum of the following:‫‏‬    – Monthly housing expense (PI...
Liabilities Calculated in DU®The total monthly obligation is the sum of the following:‫‏‬    – Monthly alimony, child supp...
Liabilities in DU®Updated Logic for Disputed Trade lines with 9.0‫‏‬    – IF DU doesn’t issue the disputed tradeline messa...
Freddie MacSelection & Use of Credit Scores  http://www.freddiemac.com/learn/pdfs/uw/credit_scores.pdfCredit Reports & Cre...
Freddie Mac’s Use of Credit Scores‫‏‬For an Accept Mortgage and an A-minus Mortgage, Loan Prospector hasdetermined that th...
Freddie Mac’s Requirement on InquiresInquiries on the credit report generally reflect the Borrowers requests for‫‏‬new or ...
Credit Education & Information www.myfico.comCredit Reports & Credit Scoring
Credit Education & Information http://www.myfico.com/crediteducation/brochures.aspxCredit Reports & Credit Scoring
Genworth GuidelinesAccess Genworth website www.mortgageinsurance.genworth.com‫‏‬        • Click on rates and guidelinesCre...
Credit Reports & Credit Scoring   60
Credit Reports & Credit Scoring   61
Legal Disclaimer  Genworth Mortgage Insurance is happy to provide you with these training  ‫‏‬  materials. While we strive...
Upcoming SlideShare
Loading in...5
×

Understanding Credit Reports and Credit Scoring (Webinar Slides)

3,538

Published on

Credit Reports & Scoring is designed to help individuals understand their role and responsibilities when viewing credit reports. It will prepare Mortgage Loan Originators with the required knowledge in order to successfully analyze a borrower's credit report. You will obtain a clear understanding of the types of credit reports and how to access these reports. For more info: www.nafcu.org/genworth

0 Comments
4 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
3,538
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
81
Comments
0
Likes
4
Embeds 0
No embeds

No notes for slide

Transcript of "Understanding Credit Reports and Credit Scoring (Webinar Slides)"

  1. 1. Understanding Credit Reports & CreditScoringMarch 2013 ©2012 Genworth Financial, Inc. All rights reserved.
  2. 2. Overview & Course Objectives Credit Reports & Scoring ‫‏‬ Credit Reports & Scoring is designed to help individuals understand their role and responsibilities when ‫‏‬ viewing credit reports. It will prepare Mortgage Loan Originators with the required knowledge in order to successfully analyze a borrowers credit report. You will obtain a clear understanding of the types of credit reports and how to access these reports. You will also have an understanding of all credit reporting and nontraditional credit compliance guidelines. Upon completion of this course, attendees will be able to effectively: –Understand Credit Report Types –Review and Analyze Credit Reports –Obtain a clear understanding of Credit Scoring Basics –Understand Agency Guidelines –Gain knowledge of the legal requirements of FICO ScoreCredit Reports & Credit Scoring 1
  3. 3. Credit Report Types A credit report is a record of the borrower’s credit activities. There are three types of credit reports • that provide data on the borrower’s liabilities and payment histories. They are:  An in-file credit report is credit data received directly from a national credit bureau. This data is not verified.  A tri-merge credit report is obtained from a credit reporting agency and contains data collected from three national repositories.  A factual credit report also called a RMCR (Residential Mortgage Credit Report) is obtained from credit reporting agencies and contains data collected by the agency from three national repositories. The credit agency verifies certain data and conducts an interview with the applicant. • REQUESTING THE CREDIT REPORT • Make sure when you order any type of credit report you:  Get the complete legal name of the borrower  Use the correct spelling of both the first and last name  Identify any alias the borrower may have  Confirm whether the borrower uses any generation suffix (Jr., III…) • Only businesses or individuals with a “permissible purpose” can access a consumer’s credit report. The • consumer must be fully aware that their credit will be accessed and have granted permission to do so. • Anyone who obtains a copy of a consumer’s credit report under false pretenses can be fined and jailed for • up to a year.Credit Reports & Credit Scoring 2
  4. 4. Credit Report Basics • WHERE IS THE BORROWER’S CREDIT INFORMATION LOCATED? Creditors voluntarily report the information to Credit Bureaus. A credit bureau is a • clearinghouse for credit history information. The bureau may also be referred to as a Credit Repository. Credit grantors provide the bureau with factual information on how their credit customers pay their bills. Each bureau assembles that information, along with public record information obtained from courthouses, into a file on each consumer. There are three major credit bureaus: • • Equifax: (800) 685-1111 www.equifax.com • Experian: (888) 397-3742 www.experian.com • Trans Union: (800) 916-8800 www.transunion.com • These national agencies maintain centralized databases containing the credit records of more • than 200 million Americans. Credit bureaus generate over a half-billion credit reports a year. •  Credit bureaus do not rate credit  Credit bureaus do not approve or reject consumer applications for credit.  Credit bureaus store and report the informationCredit Reports & Credit Scoring 3
  5. 5. Credit Report Basics WHO PREPARES THE CREDIT REPORT? ‫‏‬ Consumer reporting agencies prepare credit reports. These agencies:  Specialize in obtaining records on the credit history of almost everyone who has borrowed money  Contact national repositories of accumulated credit records for each area of the country where the applicant has lived during the most recent two-year period and prepare a credit report ‫‏‬ PRIMARY CATEGORIES OF INFORMATION ‫‏‬ There are four primary categories of information: ‫‏‬ 1.Identifying information 2.Credit history 3.Public records 4.Inquiries ‫‏‬  Identifying info may include: Name, current & previous addresses, social security number, telephone number, date of birth and current and previous employers  History of paying bills with credit grantors such as: retail stores, banks, finance companies and mortgage companies  All available public record information and judgments, foreclosures, tax liens and bankruptcies  Information about inquiries during the past 120 days. However, a consumer’s copy will list all inquiries for the past 24 months.Credit Reports & Credit Scoring 4
  6. 6. Credit Report Basics • WHAT DETAILS DOES THE CREDIT REPORT INCLUDE? For each debt listed, it provides the:  Creditor’s name  Date the account was opened  Amount of the highest credit or original loan amount  Required payment amount and unpaid balance  Current status of the account  Payment history  Any remarks or Special Comments to describe the loan situation (real estate loan, loan modification, in dispute, FNMA loan, etc.) • Information the Credit Report will Not Include:  Checking or savings account information  Medical history  Purchases made with cash  Race, gender, religion, or national origin •Credit Reports & Credit Scoring 5
  7. 7. Credit Report Basics• Free Personal Credit ReportThe Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit•Transactions (FACT) Act, provide that every consumer is entitled to one *freePersonal Credit Report from each of the 3 national credit reporting agenciesannually•Request Online• www.annualcreditreport.com•Request by Phone• (877) 322-8228•Request by Mail• Annual Credit Report Request Service• P.O. Box 105281• Atlanta, GA 30348-5281 *It is important to note that a credit report is free, but a score is not. People often confuse and interchange "report" and "score". Credit Reports & Credit Scoring 6
  8. 8. The Credit ReportSample‫‏‬Credit Reports & Credit Scoring
  9. 9. Sample Credit Report LegendSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 8
  10. 10. Sample Credit Report LegendSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 9
  11. 11. Sample Credit Report LegendSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 10
  12. 12. Sample Credit Report Legend Sample credit report retrieved with permission from Credit Plus http://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 11
  13. 13. Sample Credit Report LegendSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.html Note: Based on the type of debt it may be calculated differently by investorsCredit Reports & Credit Scoring 12
  14. 14. Sample CREDIT REPORTSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 13
  15. 15. Sample Credit ReportSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 14
  16. 16. Sample Credit ReportSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 15
  17. 17. SAMPLE CREDIT REPORT Verify the borrower’s PITI payment as the payment listed may only be P&ISample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 16
  18. 18. SAMPLE CREDIT REPORT Review who is reporting the tradeline information. Some investors may require a minimum number of tradelines for a score to be considered usable.Sample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 17
  19. 19. SAMPLE CREDIT REPORT Remember to include all collection amounts that are required to be paid in the total assets required.Sample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 18
  20. 20. SAMPLE CREDIT REPORT Verify if the Inquiry resulted in new debt and re-calculate the total debt ratio when applicable.Sample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 19
  21. 21. SAMPLE CREDIT REPORT Review for all Public Records and apply the appropriate credit requirementsSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 20
  22. 22. SAMPLE CREDIT REPORT Have the required Fraud reviews been ordered?Sample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 21
  23. 23. SAMPLE CREDIT REPORTSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 22
  24. 24. Sample Credit ReportSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.html 23Credit Reports & Credit Scoring
  25. 25. Sample Credit ReportSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 24
  26. 26. Credit Report Basics & Example • HOW LONG DOES INFORMATION REMAIN ON A CREDIT REPORT? General Information will date back to the initiation of the credit account. Limitations • apply to bankruptcies and other delinquent or derogatory items, such as: Type Limitation Bankruptcy Chapter 7 10 years from the date of entry of the order for release Bankruptcy Chapter 13 7 years from the date of entry of the order for release Suits & Judgments 7 years from date of entry or expiration of appropriate statute of limitations, whichever is longer Tax Liens - PAID *7 years from date of payment Tax Liens - UNPAID No limitation Charged to Profit & Loss 7 years Criminal Record Limitations No Limitations on criminal conviction Other Adverse Information 7 years *Based on IRS reporting 25Credit Reports & Credit Scoring
  27. 27. Credit Report Basics & Example CONSUMER DISPUTES (FCRA) •  Changes to credit data must actually take place at the repository level in order for the information to affect the score Consumers must write a letter of dispute regarding the erroneous information to the appropriate repository referencing the trade line, account number(s), and the specifics of the reported error  Under the Fair Credit Reporting Act, a credit repository has 5 days from receipt of a written investigation request to contact the appropriate credit grantor about the complaint and then to receive a reply back within 30 days of the original repository notification  Within 5 days of completion of the investigation, the repository must send a written report to the consumer with its findings (and a copy of the revised report if there were any changes) CONSUMER DISPUTES (FCRA) OUTCOMESConsumer Disputes may result • in three possible scenarios:  No response from the creditor at all…the data is REMOVED  Confirmation from the creditor…the data STANDS  Revision by the creditor…the data is CHANGED In all cases, the consumer is NOTIFIED of the results. For more on consumer rights, go to: www.ftc.gov/creditCredit Reports & Credit Scoring 26
  28. 28. Credit ScoringModel, Score Ranges‫‏‬Credit Reports & Credit Scoring
  29. 29. Credit Scoring Basics • WHAT IS A CREDIT SCORE?  A Statistical Model  A Predictor of Future Performance Based on Prior Experience  A Model Base on Known Performance  A Scorecard Factoring in Many Characteristics  A Value Falling in a Range from approximately 300 to 850 Default/Delinquency Probability of 0% LOW HIGH Score 28Credit Reports & Credit Scoring
  30. 30. Credit Scoring Basics • Who Provides and Uses Scoring? • FICO The most common credit score in use was developed by Fair Isaac Company • (FICO).  Evaluates the borrower’s credit data  Assigns a “score” which predicts borrowers’ likelihood to repay credit obligations • • Fannie Mae, Freddie Mac, and large banks have introduced score-based underwriting systems. • • Most major mortgage companies either:  Use scoring through the systems provided by their investors  Develop their own scoring technology •Credit Reports & Credit Scoring 29
  31. 31. #1 Poll QuestionCredit Reports & Credit Scoring 30
  32. 32. Credit Scoring Basics Benefits of Credit and Mortgage Scoring ‫‏‬  Scoring enables lenders to:  Achieve consistency & objectivity in underwriting  Identify high risk loans from a credit perspective  Bring efficiency, consistency and profitability to all aspects of the industry Scores are indicators of risk and performance for the credit portion of the file. Underwriters  continue to use their knowledge and experience, as well as agency guidelines to evaluate risk and make loan decisions.Credit Reports & Credit Scoring 31
  33. 33. Credit Scoring Basics-FICO Model  Payment information  Travel and Entertainment cards  Public record and collection items  Department store cards  Severity, recentness and frequency of delinquencies noted in the trade line section  Personal finance company references  Outstanding debt  Installment loans  Number of balances recently opened  Average balance across all trade lines  Other  Relationship between total balances and total credit limits on revolving trade lines  Credit history  Age of oldest trade line  Number of new trade lines  Pursuit of new credit  Number of inquiries and new account openings in the last year  Amount of time since most recent inquiry  Types of credit in use  Number of trade lines reported for each type  Bankcard This information was taken from Fair Isaac Credit Bureau Risk Scores and www.myfico.com http://www.myfico.com/CreditEducation/WhatsInYourScore.aspxCredit Reports & Credit Scoring 32
  34. 34. Credit Scoring Basics-FICO® Model Sample Credit Report- Reason Codes Note the Reason CodesSample credit report retrieved with permission from Credit Plushttp://www.creditplus.com/index.htmlCredit Reports & Credit Scoring 33
  35. 35. The Different FICO® Scoring Models Standard Models ‫‏‬ Credit Inquiry Impact on Credit Score •  Equifax Beacon 5.0  Trans Union FICO® Risk Score, Classic 04 Above-the-line inquiry: Impacts •  Experian /Fair Isaac Risk Model V2 consumer’s credit score Different types of Credit Inquiries ‫‏‬  Purchasing a car  Below the Line (“Soft”) Inquiries  Applying for a mortgage  Consumer File Inquiries  Applying for credit cards  Credit Seeking Inquiries  De-duping Process Inquiries  Other loans/financing ‫‏‬ Below-the-line-inquiry: No impact on • consumer’s credit score  Consumer obtaining their own credit report for monitoring purposes  Companies offering pre-approval programs to consumers  MI Company queriesCredit Reports & Credit Scoring 34
  36. 36. The Different FICO® Scoring Models • 30-Day Buffer: No Auto or Mortgage inquiry within 30 days from the current inquiry is counted in the score • De-Dupe Periods (Depending on Score Version): 14-days – All Auto inquiries within a rolling 14-day window count as 1 Auto inquiry; All Mortgage inquiries within a rolling 14-day window count as 1 Mortgage inquiry 45-days – All Auto inquiries within a rolling 45-day window count as 1 Auto inquiry; All Mortgage inquiries within a rolling 45-day window count as 1 Mortgage inquiry • Factor or “Reason” Codes Reason codes are listed in DESCENDING order of importance and are displayed with each score Reason codes show which area of the consumer’s credit did not score as highly as possible. In some cases – these reasons highlight issues not associated with traditional “derogatory” information. These codes can be relayed back to the borrower to explain how they can change/improve their credit profile (over time) Score factors seem less “relevant” for higher-scoring consumers as they merely indicate the reason why they did not score HIGHER •Credit Reports & Credit Scoring 35
  37. 37. Legal RequirementsFact Act, Notice to Home Applicant, RBR Notice‫‏‬Credit Reports & Credit Scoring
  38. 38. Legal Requirements of the FICO® Score –The FACT Act•What must be disclosed or provided to the Consumer?•  Consumer’s current credit score  Range of possible credit scores under the model used  Up to five key factors that affected the score  Date the score was created  Name of the person/entity that provided the score  Notice to Home Loan ApplicantCredit Reports & Credit Scoring 37
  39. 39. Credit Score Information Disclosure • http://www.bankersonline.com/tools/credscordiscl.doc • • Notice To The Home Loan Applicant • In connection with your application for a home loan, the lender must disclose to you the score that a consumer-reporting agency distributed • to users and the lender used in connection with your home loan, and the key factors affecting your credit scores. • The credit score is a computer-generated summary calculated at the time of the request and based on information that a consumer reporting • agency or lender has on file. The scores are based on data about your credit history and payment patterns. Credit scores are important because they are used to assist the lender in determining whether you will obtain a loan. They may also be used to determine what interest rate you may be offered on the mortgage. Credit scores can change over time, depending on your conduct, how your credit history and payment patterns change, and how credit-scoring technologies change. • CREDIT REPORTS & SCORES • Because the score is based on information in your credit history, it is very important that you review the credit-related information that is • being furnished to make sure it is accurate. Credit records may vary from one company to another. If you have questions about your credit score or the credit information that is furnished to you, contact the consumer reporting agency at the • address and telephone number provided with this notice, or contact the lender, if the lender developed or generated the credit score. The consumer-reporting agency plays no part in the decision to take any action on the loan application and is unable to provide you with specific reasons for the decision on a loan application. • • If you have questions concerning the terms of the loan, contact the lender. • The following company provided the credit score used in making a decision for your loan request. The company that provided the credit • score also provided the credit file that your score is based upon. • • Experian • 701 Experian Parkway • PO Box 2002 • Allen, TX 75013-0036 • Toll Free 888-397-3742Credit Reports & Credit Scoring 38
  40. 40. CREDIT REQUIREMENTS The Federal Reserve Board and Federal Trade Commission (hereinafter, the "Agencies") jointly adopted the Risk Based Pricing Rule ("Rule"), which was published on January 15, 2010. Compliance with the Rule was required by January 1, 2011. The Rule requires a creditor that uses a credit report or score in connection with a consumers application for, or a grant, extension, or other provision of, credit that is primarily for personal, family, or household purposes, to provide the consumer a Risk- Based Pricing Notice ("Notice") when, based wholly or partially on the credit report or score, the creditor grants, extends, or otherwise provides credit to the consumer on material terms that are materially less favorable than the most favorable material terms available to a substantial proportion of consumers from or through that creditor. http://edocket.access.gpo.gov/2010/pdf/E9-30678.pdfCredit Reports & Credit Scoring 39
  41. 41. Risk-Base Pricing (RBP) Notice http://www.icba.org/files/ICBASites/PDFs/FinalRulesonRiskBasedPricing.pdf http://www.scoreinfo.org/Disclosure-Notices/Risk-Based-Pricing-Notice.aspxCredit Reports & Credit Scoring 40
  42. 42. Credit UsesAgency Requirements‫‏‬Credit Reports & Credit Scoring
  43. 43. #2 Poll QuestionCredit Reports & Credit Scoring 42
  44. 44. Fannie Mae Credit Requirements with DU® https://www.efanniemae.com/sf/technology/ou/du/pdf/ducreditscoremodel.pdfCredit Reports & Credit Scoring 43
  45. 45. Fannie Mae Credit Requirements with DU®DU Credit Score Requirements‫‏‬Credit scores are not an integral part of DUs risk assessment (DU performs its own‫‏‬analysis of the credit report data); however, lenders must request credit scores foreach borrower from each of the three credit repositories when they order the threein-file merged credit report. If one or two of the credit repositories do not contain anycredit information for the borrowers who have traditional credit, the credit report isstill acceptable as long as–credit data is available from one repository,–a credit score is obtained from that repository, and–the lender requested a three in-file merged report.If the transaction does not meet the above requirements, or if every borrower on the‫‏‬loan application lacks at least one credit score, then DU will issue an Out of Scoperecommendation. The loan may be manually underwritten by establishing anontraditional credit profile for the borrower(s).2013 Selling GuidePart B, Origination Through ClosingSubpart B3, Underwriting BorrowersChapter B3-5, Credit AssessmentSection B3-5.1, Credit ScoresB3-5.1-01, General Requirements for Credit Scores (11/13/2012)Credit Reports & Credit Scoring 44
  46. 46. Fannie Mae Credit RequirementsRepresentative Credit Score‫‏‬ B3-5.1-02, Determining the Representative Credit Score for a Mortgage Loan (08/21/2012) [1] https://www.efanniemae.com/sf/guides/ssg/sgpdf.jsp 2013 Selling Guide Part B, Origination through Closing Subpart B3, Underwriting Borrowers Chapter B3-5, Credit Assessment Section B3-5.1, Credit ScoresCredit Reports & Credit Scoring 45
  47. 47. Fannie Mae Credit RequirementsWhat is the representative score?‫‏‬Credit Reports & Credit Scoring 46
  48. 48. Fannie Mae Credit Requirements with DU®2013 Selling GuidePart B, Origination Through ClosingSubpart B3, Underwriting BorrowersChapter B3-5, Credit AssessmentSection B3-5.1, Credit ScoresB3-5.1-01, General Requirements for Credit Scores (11/13/2012)Credit Reports & Credit Scoring 47
  49. 49. Fannie Mae Credit Requirements with DU® https://www.fanniemae.com/singlefamily/originating-underwritingCredit Reports & Credit Scoring 48
  50. 50. Fannie Mae Credit Requirements with DU®B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-‫‏‬establishing Credit (05/15/2012)Credit Reports & Credit Scoring 49
  51. 51. Fannie Mae Credit Requirements with DU®Credit Processing‫‏‬ – Authorized User Accounts: DU considers authorized user accounts in it’s credit risk assessment. FICO scores may be impacted but DU’s risk engine looks at the trade lines and makes a credit recommendation. – Lenders typically should underwrite without the benefit of these trade lines unless your borrower is the authorized user and you have confirmed they have been making the payments on the account.Credit Reports & Credit Scoring 50
  52. 52. Liabilities Calculated in DU®The total monthly obligation is the sum of the following:‫‏‬ – Monthly housing expense (PITI) – Monthly payments on installment debts and other mortgage debts that extend beyond ten months (including deferred installment loans); – Monthly payments on revolving debts (unless payoff and closing out); – 30 Day charge accounts -monthly balance will not be calculated in the DTI but included as reserves in the “required funds to be verified” with DU 9.0 • Do not Omit or mark paid by close • Verify MOP is “O” on credit report and mapped correctly into DU – Monthly payments on lease agreements, regardless of the expiration date of the lease; – Any net loss from a rental property – Any deferred student loan with no payment lenders may use 2% of the UPB or obtain documentation of what the actual payment will be – Any debit that significantly impacts the borrower’s ability to pay their monthly obligations must be countedCredit Reports & Credit Scoring 51
  53. 53. Liabilities Calculated in DU®The total monthly obligation is the sum of the following:‫‏‬ – Monthly alimony, child support, or maintenance payments that extend beyond ten months – Nonreimbursed Employee Expenses (when a 24 month average can not be calculated the monthly expenses is used in the DTI and NOT used to reduce monthly income) – Business debt in the borrower’s name unless- • the account in question does not have a history of delinquency, • the business provides acceptable evidence that the obligation was paid out of company funds (such as 12 months of canceled company checks), and • the lender’s cash flow analysis of the business took payment of the obligation into consideration.Credit Reports & Credit Scoring 52
  54. 54. Liabilities in DU®Updated Logic for Disputed Trade lines with 9.0‫‏‬ – IF DU doesn’t issue the disputed tradeline message, the lender is not required to further investigate • Lenders must include the payment, if any in the borrower’s DTICredit Reports & Credit Scoring 53
  55. 55. Freddie MacSelection & Use of Credit Scores http://www.freddiemac.com/learn/pdfs/uw/credit_scores.pdfCredit Reports & Credit Scoring 54
  56. 56. Freddie Mac’s Use of Credit Scores‫‏‬For an Accept Mortgage and an A-minus Mortgage, Loan Prospector hasdetermined that the Borrowers credit reputation is acceptable. – In all other Mortgages, the Seller must thoroughly evaluate the Borrowers credit reputation in accordance with the requirements set forth in this section and document in the Mortgage file the Sellers conclusion the reputation is acceptable. Single-Family Seller/Servicer Guide, Bulletins and Industry Letters Single-Family Seller/Servicer Guide, Volume 1 Chs. 37-38: Credit Underwriting Chapter 37: Underwriting the Borrower 37.7: Evaluating Borrower credit reputation (08/21/12)Credit Reports & Credit Scoring 55
  57. 57. Freddie Mac’s Requirement on InquiresInquiries on the credit report generally reflect the Borrowers requests for‫‏‬new or additional credit. Inquiries made for other purposes, such as generalsolicitations not initiated by the Borrower or monitoring inquiries by currentcreditors, typically are not shown on the credit report.When the credit reportindicates that a creditor has made an inquiry within the previous 120-dayperiod, the Seller must determine whether additional credit was granted. Aletter from the creditor or, if such a letter is unobtainable, a signedstatement from the Borrower may be used to determine whether additionalcredit was obtained. If additional credit was granted, the Seller must obtainverification of the debt and must consider the debt when qualifying theBorrower subject to the requirements in Section 37.16, Monthly debtpayment-to-income ratio. Single-Family Seller/Servicer Guide, Bulletins and Industry Letters Single-Family Seller/Servicer Guide, Volume 1 Chs. 37-38: Credit Underwriting Chapter 37: Underwriting the Borrower 37.7: Evaluating Borrower credit reputation (08/21/12)Credit Reports & Credit Scoring 56
  58. 58. Credit Education & Information www.myfico.comCredit Reports & Credit Scoring
  59. 59. Credit Education & Information http://www.myfico.com/crediteducation/brochures.aspxCredit Reports & Credit Scoring
  60. 60. Genworth GuidelinesAccess Genworth website www.mortgageinsurance.genworth.com‫‏‬ • Click on rates and guidelinesCredit Reports & Credit Scoring 59
  61. 61. Credit Reports & Credit Scoring 60
  62. 62. Credit Reports & Credit Scoring 61
  63. 63. Legal Disclaimer Genworth Mortgage Insurance is happy to provide you with these training ‫‏‬ materials. While we strive for accuracy, we also know that any discussion of laws and their application to particular facts is subject to individual interpretation, change, and other uncertainties. Our training is not intended as legal advice, and is not a substitute for advice of counsel. You should always check with your own legal advisors for interpretations of legal and compliance principles applicable to your business. GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, ‫‏‬ EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. IN NO EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO THE TRAINING AND THE MATERIALS. ‫‏‬® Desktop Originator/Desktop Underwriter (DO ® /DU ® ) are registered trademarks of Fannie Mae.®Loan Prospector is a Registered Trademark of Freddie Mac©2012 Genworth Financial, Inc. All rights reserved. 62
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×