New credit scoring tool can help service providers mitigate risk and prevent loss during tough economic times, industry experts say, additional study finds ReportM webinar last week titled “How Mortgage Agents Can Mitigate Risk Exposure in a Volatile Environment,” sponsored by FICO.

You can watch a webinar recording here.

The webinar featured speakers Joanne M. Gaskin, AMP, Vice President of Scores and Analytics, FICO and Ed Delgado, President Emeritus, Five Star Global, LLC. They discussed ways in which financial institutions can more accurately predict a homeowner’s resilience during times of economic turmoil or volatility, such as the current COVID-19 crisis.

Specifically, they explained how the resilience index recently introduced by FICO helps mortgage services manage potential latent risk among groups of borrowers with similar FICO scores. They do this, they noted in the introduction, “by leveraging the FICO Resilience Index (FRI) proactively for account management decisions to reduce exposure with greater precision, by taking into account resilience at the owner level “.

FICO’s new scoring model, which FICO says is designed to help lenders better assess consumers’ sensitivity to financial stress by examining their ability to survive financially in a downturn, is transformative, Delgado said.

“As an industry, one of the most painful results of what we do is a lockdown,” he said. “A lot of times we look at it in terms of the credit loss and how quickly can we complete an REO liquidation…? there is an opportunity to advance technologies that help mitigate this loss, it’s exciting. “

Gaskin goes on to detail the FRI methodology while highlighting the ways in which it is indeed such a preemptive and industry-changing breakthrough.

Last summer, FICO introduced the FRI, which is intended to supplement its standard FICO score.

“In times of economic uncertainty, lenders and investors aim to value and balance portfolios based on rapidly changing conditions,” FICO said on its blog. “This helps to strengthen credit safety and soundness, as well as support the global economy. By actively working with lenders and consumers to navigate the current situation, it is evident that accurate analysis is more important than ever to avoid an excessive credit crunch that can delay an economic recovery.

The FICO Resilience Index is designed to give lenders and investors a refined tool to help identify consumers across the bands of FICO scores that represent higher resilience during an unexpected economic disruption. For example, more resilient consumers tend to have more experience managing credit; lower total revolving balances; fewer active accounts; and fewer credit inquiries over the past year.

The FICO Resilience Index Scale provides an additional layer of information to help more accurately capture a consumer’s resilience and enable lenders to provide access to credit during tough economic times. Unlike the FICO score, which ranges from 850 to 300, the FICO resilience index has a scale of 1 to 99. Consumers with scores between 1 and 44 are considered to be the most prepared and the most able to cope. an economic change, according to FICO.

This, Gaskin said, helps traders answer the question, “How do I capture this latent risk that might emerge during times of economic stress?” “

Essentially, Gaskin explained, using data from the 2007-2009 period, the IRF offers a double-digit score ranging from 1 to 99, lower equals greater resilience; uses cases spanning the business cycle during stressed and normal times; provides up to five reason codes, supports adverse action stories, by FCRA; and is pulled as a FICO score, taking advantage of existing FICO scoring processes.

This is an early version of a tool that will likely undergo changes, Gaskin added.

Full webinar available here.