get ahead of changing credit behavior - fico® | fico ... · confidential. the material in this...

Confidential. The material in this presentation is the property of Fair Isaac Corporation, is provided for the recipient only, and shall not be used, reproduced, or disclosed without Fair Isaac Corporation's express consent.© 2009 Fair Isaac Corporation. 1

Diane Leider Director, Scoring Solutions FICO

June 16, 2010

Get Ahead Of Changing Credit BehaviorFICO® Score Trends Service

© 2009 Fair Isaac Corporation. Confidential.2 © 2009 Fair Isaac Corporation. Confidential.2

Agenda» Current Market Challenges

» Service Description

» Solution Overview & Demo

» Summary

© 2009 Fair Isaac Corporation. Confidential.3

Delinquency Rates Continue to Grow Residential Loans Delinquency Rates Have Risen Above Consumer Loans

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Consumer Loans Residential Loans Credit Card Loans

US Top 100 Lenders (2002–2008)Percentage of Loans Delinquent 30+ Days

Note: Residential real estate loans include loans secured by one- to four-family properties, including home equity lines of credit.200720052002 20042003

Source: Federal Reserve, Delinquency Rates; 100 Largest Banks, Seasonally Adjusted

2006 2008 2009


Overall Population Risk Increasing Dramatically

90+ Delinquency Rate (% increase Y/Y)

Population Segment

’05-’06 ’06-’07 ’07-’08 ’08-’09

All Accounts 11.3 11.7 (3.3%)

13.2 (12.7%)

14.7 (11.4%)

Auto Loans Only 4.2 4.6 (9.7%)

5.4 (17.2%)

6.3 (16.6%)

Bankcards Only 7.8 8.4 (7.9%)

9.3 (11.0%)

10.0 (7.5%)

Real Estate Loans Only

2.7 3.4 (27.3%)

5.3 (55.4%)

7.8 (47.2%)

12-Month Performance on Existing Accounts

Performance measured over 12-month window from Nov through October for each period (e.g., Nov 2005-October 2006)


Key Federal Reserve Districts Significantly Impacted

90+ Delinquency Rate (% increase Y/Y)

Population Segment

’05-’06 ’06-’07 ’07-’08 ’08-’09

All Accounts 11.3 11.7 (3.3%)

13.2 (12.7%)

14.7 (11.4%)

FRD 6 - Atlanta 13.5 14.0 (4.2%)

16.5 (17.8%)

18.6 (12.7%)

FRD 11 - Dallas 16.5 15.8 (-4.0%)

16.6 (5.0%)

17.3 (4.2%)

FRD 12 - San Francisco

9.8 10.5 (6.9%)

13.1 (25.0%)

16.2 (23.6%)

12-Month Performance on Existing Accounts

Performance measured over 12-month window from Nov through October for each period (e.g., Nov 2005-October 2006)


Current Market Challenges

No up-to-date industry and segment level distribution guidance based on FICO®

Scores

No basis of comparisons over specific time frames

No view into trends and behavior patterns at geo region level

ChallengesStrategy decisions made on broad guidance requires “trial and error” that costs time and money

Inability to react to portfolio or industry trends as they occur

Strategies set at nationwide levels miss mitigating geo risks and taking advantage of geo opportunities

Consequences

Strategies set based on portfolio results that are not indicative of regional or industry trends

Economic instability creates rapidly changing trends

Forecasting becomes inaccurate without updated input on changing trends


FICO® Score Trends Service

DescriptionAn on-demand trend reporting package offering insights into FICO®

score distribution, performance, and underlying market shifts in credit behaviors over time in a variety of consumer segments. Augmented every six months with nationally-representative data.

Value For the first time, lenders can analyze industry trends for FICO®

Scores at a more detailed level with dynamically generated reports based on recent data. These updated views can drive adjustments to score cutoffs, revisions of credit terms, and refined business strategies.


» Validation Charts, Alignment Plots

» Odds Shift Impact Report

» Score Distributions

» Score Movement Table

» Characteristic Trends

Solution Overview


Solution OverviewCharts Provided Purpose Benefit/Impact

Validation (odds) Charts

Alignment Plots

Quantifies how the scores rank ordering risk across the selected consumer segment

Graphically illustrates patterns observed in the odds-to-score relationship

» Help benchmark portfolio performance to general industry performance

» Provide general performance expectations at given score ranges

»Provide insight into odds-to-score trends by segments or by time-periods

Odds Shift Impact Report

Quantifies shifts on FICO® Score points and odds across score ranges compared to previous time periods

» Aids lenders in adjusting score cutoffs and performance expectations relative to recent consumer credit behavior

Score Distributions Illustrates the distribution of consumers by score by interval as well as cumulative percentages

» Benchmark credit risk of customer populationto broader market population

» Refine acquisition strategies to avoid pocketsof risk due to regional economic deteriorationor identify expansion opportunities

Score Movement Table Measures movement of scores over time or across scoring models

» Provides insight into how consumers across the score range are shifting over time

Characteristic Trends

Population Statistics

Illustrates the percentage of the consumer populations and the associated bad rates in selected characteristic’s attributes

» Help benchmark customer credit usagetrends to broader consumer credit usage trends

» Gain insights into consumer credit usepatterns and their performance impact


Solution Overview Reporting Options

Scoring ModelFICO®

FICO® 8Industry Models

Mortgage, Auto, Bankcard FICO® NextGen

Real Estate Loan Segments RE Observation Date:

within 1 year1 year up to 3 years ago3 years up to 5 years ago5 or more years ago

IndustryAll Industry accountsAuto finance loansCredit or revolving accountsReal Estate Loans

Observation DateOctober 2005October 2006October 2007April 2008October 2008April 2009October 2009

Performance Period6 Months12 Months24 Months

ApplicationCustomer ManagementAcquisitions

RegionNationwideFederal Reserve DistrictState or MSA

Delinquency Definition60+ or 90+ days late, Charge-off


Validation Charts

Quantifies how the scores rank order risk across the selected consumer segment


Validation Charts Key Benefits

» Help benchmark portfolio performance to general industry performance

» Provide general performance expectations at given score ranges

» Performance can be analyzed at the consumer or trade line level

» Underlying data can be exported to drive further analysis


Alignment Plots

Application: Customer Management

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All Industry Accounts October 2007 (12 months performance) National

Graphically illustrates rank-ordering observed in the odds-to-score relationship


Alignment Plots Key Benefits

» Graphical illustration of the odds-to-score relationship

» Enables comparison of different time periods, geographic regions, or consumer sub-populations in the same graph

» Trends can be easily observed graphically


Observation: Consumers scoring 700 in Minneapolis exhibit much better risk than those in Atlanta.

Potential Action: Incorporate geography into loss forecasting efforts to better reflect the expected losses of your portfolio.


Alignment Plots Example 1: Comparing performance over time


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All Industry Accounts October 2005 (12 months performance) National All Industry Accounts October 2006 (12 months performance) National All Industry Accounts October 2007 (12 months performance) National


Alignment Plots Example 2: Comparing performance across regions


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All Industry Accounts October 2007 (12 months performance) National All Industry Accounts October 2007 (12 months performance) Federal Reserve District 6 - Atlanta All Industry Accounts October 2007 (12 months performance) Federal Reserve District 11 - Dallas All Industry Accounts October 2007 (12 months performance) Federal Reserve District 9 - Minneapolis


Alignment Plots Example 3: Comparing across time in an specific industry


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Alignment Plots Example 4: Comparing within industry over time


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Odds Shift Impact Report Sample Report

Quantifies shifts on FICO® Score points and odds across score ranges compared to previous time periods


Odds Shift Impact Report Key Benefits

» Provides summary view of odds-to-score shift over the previous 6, 12, or 24 month periods

» Aids lenders in adjusting score cutoffs and performance expectations relative to recent consumer credit behavior

» Can be fine-tuned to focus on a specific consumer or geographical segment


Observation: Real estate loan quality is decreasing rapidly. Consumers unable to pay mortgages may soon struggle to pay credit cards.

Potential Action: Increase score cutoffs in credit card strategies to prevent an influx of lower credit quality customers that will lead to higher charge-off rates.


Score Distribution Interval Plot

L EG EN D D EF IN IT IO N :T he legend is c ons t ruc ted f rom the c ho ic es in the d rop-down b oxes .S c o re | R ea l E s ta te O p t ion (if app lic ab le ) | Indus t ry | O bs e rva t ion D a te | R eg ion

© 2 0 0 9 FICO . A ll r ig h ts r e s e rv e d . Co n f id e n tia l. Th e ma te r ia l in th is p re s e n ta tio n is th e p ro p e r ty o f FICO , is p ro v id e d f o r th e re c ip ie n t o n ly , a n d s h a ll n o t b e u s e d , re p ro d u c e d , o r d is c lo s e d w ith o u t FICO 's e x p re s s c o n s e n t.

F IC O ® S co re T ren d s S erv iceS co re D is trib u tio n s

In te rva l S c o re D is t ribu t ion

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B E A C O N ® 09 M ortgage | < 1 y ea r | R ea l E s ta te Loans | O c tobe r 2007 | F R D 3 - P h ilade lph iaB E A C O N ® 09 M ortgage | 3 -< 5 y ea rs | R ea l E s ta te Loans | O c tobe r 2007 | F R D 3 - P h ilade lph ia

Illustrates the distribution of consumers in each score range


Score Distribution Cumulative Plot

Cumulative Score Distribution

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All Industry Accounts October 2008 National All Industry Accounts October 2008 Federal Reserve District 6 - Atlanta All Industry Accounts October 2008 Federal Reserve District 9 - Minneapolis All Industry Accounts October 2008 Federal Reserve District 11 - Dallas

Illustrates the cumulative percentage of consumers at each score cutoff


Score Distribution Key Benefits

» Benchmark credit risk of customer population to broader market population

» Refine acquisition strategies to avoid pockets of risk due to regional economic deterioration or identify expansion opportunities

» Assists in market sizing analysis


Observation: National bankcard data shows score distributions much higher in Iowa vs. national, and GA much lower than national.

Potential Action: Examine your portfolio. If similar trends exist, perhaps this impacts your marketing efforts or product offering by geography.


Score Distribution Impact on Originations

A score of 655 and below captures the following volumes:Georgia: 37%; Nation: 30%; Iowa: 22%

Cumulative Score Distribution

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Bank National Revolving Accounts October 2008 National Bank National Revolving Accounts October 2008 Georgia Bank National Revolving Accounts October 2008 Iowa


Characteristic Trends Characteristic Distribution

L E G E N D D E F I N I T I O N :T h e le g e n d is c o n s t ru c t e d f ro m t h e c h o ic e s in t h e d ro p -d o w n b o x e s .O b s e rva t io n D a t e | R e g io n

© 2 0 0 9 F IC O . A ll r ig h ts r e s e r v e d . C o n f id e n t ia l. T h e m a te r ia l in th is p r e s e n ta t io n is th e p r o p e r ty o f F IC O , is p r o v id e d f o r th e r e c ip ie n t o n ly , a n d s h a ll n o t b e u s e d , r e p r o d u c e d , o r d is c lo s e d w ith o u t F IC O 's e x p r e s s c o n s e n t.

F IC O ® S c o re T re n d s S e r v ic eP re d ic t iv e V a r ia b le D is t r ib u t io n

# T r a d e L in e s O p e n e d 0 - 1 1 M o n th s

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Illustrates the percentage of the consumer population in the selected characteristic’s attributes


Characteristic Trends Characteristic Risk Pattern

L E G E N D D E F I N I T I O N :T h e le g e n d is c o n s t ru c t e d f ro m t h e c h o ic e s in t h e d ro p -d o w n b o x e s .O b s e rva t io n D a t e - P e r fo rm a n c e D a t e | R e g io n

© 2 0 0 9 F IC O . A ll r ig h ts r e s e r v e d . C o n f id e n t ia l. T h e m a te r ia l in th is p r e s e n ta t io n is th e p r o p e r ty o f F IC O , is p r o v id e d f o r th e r e c ip ie n t o n ly , a n d s h a ll n o t b e u s e d , r e p r o d u c e d , o r d is c lo s e d w ith o u t F IC O 's e x p r e s s c o n s e n t .

# T r a d e L i n e s O p e n e d 0 - 1 1 M o n t h s

F I C O ® S c o r e T r e n d s S e r v i c eP r e d i c t i v e V a r i a b l e D i s t r i b u t i o n

1 2 M o n t h s P e r fo rm a n c e9 0 + / A n y D e r o g

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Illustrates the risk associated with the selected characteristic’s attributes


Characteristic Trends Key Benefits

» Choose from a list of over 50 credit characteristics

» Help benchmark customer credit usage trends to broader consumer credit usage trends

» Gain insights into consumer credit use patterns and their performance impact

» Enables use of credit characteristics in decision strategies

» Assists in market sizing analysis

» Underlying data can be exported to drive further analysisObservation: Consumers that have opened several new trade lines in the last year are much riskier. Risk increase with newly opened trade lines is even greater in CA vs. NY.

Potential Action: Set higher FICO cutoffs for consumers with a high # of recently opened trade lines.


Score Movement Sample Report

Measures movement of scores over time or across scoring models


Score Movement Key Benefits

» Provides insights into how consumers across the score range are shifting over time

» Consumer movement can be analyzed over time or between scoring models

» Enables portfolio quality analysis


Observation: Between October 2007-08, while the percentage of real estate consumers with FICO®

scores over 680 has remained stable, 14% of those consumers experienced a decrease of 20 points or more in that period.

Potential Action: Initiate a score refresh strategy focused on consumers close to decision cutoffs.


Agenda» Current Market Challenges

» Service Description

» Solution Overview

» Summary


Usage Examples

» Identify risk trends on broad national population» Action: Modify score cutoffs in strategies » Benefit: Prevent an influx of lower credit quality customers that will

lead to higher losses

» Incorporate geography into strategies & forecasting » Action: Modify marketing efforts or forecasting models by geography» Benefit: Better reflect the expected losses of your portfolio» Benefit: Better allocate resources to less risky areas

» Learn from other industries» Action: Modify score cut-offs » Benefit: Avoid increased risk fallout from other industries

» Evaluate FICO score cutoffs for specific segments» Action: Modify score cut-off based on changes observed in risk

patterns » Benefit: Reduce exposure to riskier segments of the population


Summary - Benefits

» Immediately available resource offering FICO® Score insights

» Refine portfolio management strategies to reduce risk and improve profitability

» Increase understanding of consumer credit risk trends and behaviors to efficiently drive segmentation strategies

» Gain insight into how the secondary market and investment community will view your portfolio in relation to others

» Enhance your ability to capture performance trends early during changing economic circumstances

» Export data behind any report for further analysis

» Also available FICO® Score Trends Insights Report highlighting key observations made by the FICO scoring experts.

Confidential. The material in this presentation is the property of Fair Isaac Corporation, is provided for the recipient only, and shall not be used, reproduced, or disclosed without Fair Isaac Corporation's express consent.© 2009 Fair Isaac Corporation. 33

Thank You

Diane [email protected]

get ahead of changing credit behavior - fico® | fico ... · confidential. the material in this...

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