VantageScore’s Top Five Most Popular Questions at NAFCU’s Annual Conference

Credit Scoring with VantageScoreWritten by Jeff Richardson
Vice President, Communications and Public Relations

NAFCU members aren’t exactly known for being shy or reserved.  So you can imagine how many questions I fielded about credit scoring, both during my breakout session presentation and while chatting with conference participants in VantageScore’s networking lounge during NAFCU’s Annual Conference and Solutions Expo in Montréal, Canada last month.

Because some of the questions during the conference were particularly popular, I thought it might be helpful to compile and share the five most common questions that came my way. Here are those questions and related answers, presented in no particular order.

1. How does the VantageScore® credit scoring model help credit unions grow?

One of the key differentiators of the VantageScore® model is its ability to score more of your credit union members. Your lending portfolio will benefit from capturing the widest possible base of qualified and relevant prospects within your target demographics and risk strategy, without having to relax credit standards to attract more members.

Traditional credit scoring models limit your lending universe to a smaller percentage of qualified U.S. adults than the lending population available with the VantageScore® 3.0 model. The VantageScore® 3.0 model gives lenders, like your credit union, access to 30-35 million consumers who are invisible to traditional credit scoring models. That’s a group larger than the population of Texas!

  • VantageScore® 3.0 credit scoring modelThe model expands the lending universe by using broader and deeper credit file data and more advanced modeling techniques that capture unique consumer behaviors more accurately.
  • Nearly 25% of these newly scoreable consumers are actually prime or near-prime credit quality—excellent candidates for mainstream lending products.

A terrific infographic that provides a more detailed explanation is available on our website.

2. Why does your member’s credit score go down after he/she opens a new credit account?

One of the characteristics that contribute to the calculation of a VantageScore® credit score is opening a new credit card account. This is far less influential than the main factors that affect a score, such as missing payments or maxing out a credit card account, but it does have an impact.

A small drop in a person’s credit score is possible after opening a new credit card because that new account represents new risk of potential overextension, with no available history to demonstrate that the consumer can effectively manage the new account. Applying for a new account also likely involved a credit inquiry with one or more of the three credit reporting companies (CRCs: Equifax, Experian, or TransUnion). That inquiry is also likely to cause a slight drop in an individual’s score.

As long as your member doesn’t max out the credit card or miss any payments on the new account (or any others), the member’s score should return to its previous level in about three months.

3. Who uses the VantageScore® model?

Nearly one billion VantageScore ® credit scores were used in 2014, by over 2,000 lenders and other industry participants, including 6 of the 10 largest banks. In that same vein, credit unions should know that the National Credit Union Administration (NCUA) recognizes the VantageScore® model, and there are no regulatory hurdles for credit unions that want to take advantage of the model.

4. How can our credit union switch to VantageScore®?

The VantageScore ® model is marketed and sold exclusively through licensing arrangements with the three major CRCs (Equifax, Experian and TransUnion). Your credit union likely already has a relationship with one or more of these companies and can obtain more information about VantageScore® through your CRC representative. Get contact information for the three CRCs on our website.

5. Did I win the VantageScore® Drone Giveaway?

VantageScore's DJI Phantom 2 VISION GiveawayVantageScore’s giveaway of the DJI Phantom 2 Vision personal drone generated almost as much attention as our presentation session. Inspired by our company tagline, “A Higher Level of Confidence,” the high-flying prize was a constant object of curiosity – and longing by conference attendees.

Thanks to all who submitted a business card or had their badge scanned for a chance to win. You’re all winners in our book, but only one lucky NAFCU Annual Conference attendee could take home the drone. Congrats to credit union attendee Michael O. who is the new owner of a DJI Phantom 2 VISION!

It was a real pleasure meeting you all at the conference. And, if you want to connect with VantageScore® further, sign up for our e-newsletter The Score, and follow us on Twitter: @VantageScore®In the meantime: À l’année prochaine (Until next year)!

Download your copy of the free white paperMaximizing the Credit Universe” to get valuable insights into ways to revise current strategies to manage risk, while expanding the ‘credit accessible universe.’

VantageScore LogoVantageScore Solutions, LLC is NAFCU Services Preferred Partner for credit scoring. For more information on VantageScore’s products and services, visit www.nafcu.org/vantagescore.

Prepare Your Credit Union for Changes in HMDA Data Collection Rules (Part 2)

Prepare Your Credit Union for HMDA ChangesBy Edward Kramer, Executive Vice President of Regulatory Affairs, Wolters Kluwer Financial Services

In part I of this series, the new data fields that the Consumer Financial Protection Bureau (CFBP) seeks to collect for more HMDA reporting transparency and timeliness and concerns about potential misinterpretation of newly collected data was addressed.

To wrap-up, we will consider the known and unknown factors related to this regulatory change and conclude with a list of key tips you can use to prepare your credit union for these pending changes.

Imminent Compliance and Technology Challenges Are Clear

Although most industry observers expect issuance of the final regulation sometime in 2015, we don’t yet know which specific data fields will be included, nor the amount of time institutions will have to prepare before the requirements go into effect. We also do not know if or how much of any additional data collected will be made public by the regulators.

Protecting the privacy of personally identifiable financial information should be a priority. The inclusion of items such as credit scores, borrower age, and other personal data may raise legitimate privacy concerns, particularly if it becomes possible to identify a specific consumer by combining the new data with other publicly available data.

Despite the unknowns, one thing is certain:  the extent and breadth of the proposed new data collection fields will be considerable.  They will impose significant regulatory compliance and information technology challenges on mortgage lenders.

How Your Credit Union Can Prepare

Whatever requirements are ultimately adopted, lenders will need to evaluate their current data collection capabilities, identify gaps, and make needed investments to be compliant.  What impact will this have for your credit union’s staffing decisions, training, vendor support, and technology infrastructure—and how can you begin to prepare for these changes?

While the specifics have not yet been announced, you needn’t wait before initiating some preparatory action: 

  • Plan now for the increased data capture requirements and remember that data integrity is essential
    The changes coming will be sweeping and broad, impacting your organization in many ways. Minimally, these changes will include all new data fields outlined in the Dodd-Frank legislation—and likely, many if not all of the CFPB’s additional proposed data fields—so make sure your preparation is underway.
  • Identify all lines of business impacted by the HMDA changes
    Determine how you will organize these lines of business so that your efforts are coordinated. Ensure that all individuals responsible for implementation are connected and developing a plan of action so your organization is as ready as it can be once the final rules are announced.
  • Identify and prepare for any needed staff training
    Determine what your enterprise methodology and approach will be to manage the implementation. It’s never too early to start planning when it comes to staff training.
  • Strengthen and bolster your analytics capabilities
    The last thing you want is to submit data to the government that you haven’t already fully analyzed.  Given resource constraints, lenders might be best served in outsourcing their data analytics needs to a capable vendor.  But, whether you manage this function internally or through a third party, know the implications of that data for your organization—and how you plan to go about addressing any problems found in the analysis.  You don’t want others analyzing and interpreting your findings in advance of conducting your own comprehensive review.
  • Conduct a root cause analysis on questionable cases
    If your analyses uncover indicators of potential disparate treatment or impact of protected classes, conduct a root cause analysis to determine the extent of the problem and what is causing it. Then fix it.

Accept the fact that whatever implementation timeline is ultimately defined, the transition time for Tim Burniston EVP Wolters Kluwer Talks HMDAmanaging a regulatory change of this magnitude can never really be sufficient. But with some thoughtful and concerted advance preparation, you will be best positioned to ease some of the challenges in transitioning effectively to the new requirements.

Watch and share this short video of Tim Burniston, Executive VP at Wolters Kluwer, speaking about 4 key ideas to prepare for HMDA changes: New HMDA Fields Coming – Are You Ready?

Wolters Kluwer Financial ServicesWolters Kluwer Financial Services is NAFCU Services Preferred Partner for consumer and member business lending and deposit services. For more information on Wolters Kluwer’s products and services, visit http://www.nafcu.org/wolterskluwer/

Prepare Your Credit Union for Changes in HMDA Data Collection Rules (Part 1)

Mortgage-App-Approval-HMDA-Wolters-KluwerBy Edward Kramer, Executive Vice President of Regulatory Affairs, Wolters Kluwer Financial Services

In 2015, expectations loom large for lenders around finalization of rules for the new Home Mortgage Disclosure Act (HMDA) data collection requirements.

Created as part of the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the regulation authorizes the Consumer Financial Protection Bureau (CFPB) to expand the current HMDA dataset in order to help “financial regulators and public officials keep a watchful eye on emerging trends and problem areas in the mortgage market.”

CFPB Seeks More Data Transparency and Timeliness

The proposed changes include required reporting of 37 new data fields, including 20 not currently required under Dodd-Frank. Those 20 fields represent additional information that the CFPB proposes to collect for analytical purposes, including:

  • Detailed property location information
  • Total points and fees
  • Rate spread for all loans
  • Information on loan features such as teasers and introductory rates, and
  • Applicant’s age and credit score

In addition, the CFPB proposes to collect data such as:

  • Borrower’s debt-to-income ratio
  • Combined loan-to-value ratio
  • Loan’s qualified mortgage status, and
  • Inclusion of manufactured housing in collateral

When the CFPB proposed the expanded HMDA data collection specifications in the summer of 2014, it argued for the need for greater transparency and timely access to regulate lending activity, citing concerns that “under the current regime, HMDA data may be reported as many as 14 months after final action is taken on an application or loan.”

Consequently, for financial institutions reporting at least 75,000 covered loans per year, which accounts for the vast majority of loan application registrations in the annual HMDA files, the new rules would require submission of HMDA data on a quarterly rather than annual basis. The CFPB estimates that this specific reporting provision would impact about 28 financial institutions that combined would report about 50% of all HMDA-reported transactions.

Potential for Data Misinterpretation Causes Concern for Many

The regulatory landscape changed dramatically with the 1975 enactment of HMDA and then again with the passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). The latest proposed regulatory changes may have an equal or greater impact on institutions affected by the proposal. This observation is borne out in the anxiety over the new data reporting requirements evident in the October 2014 Regulatory & Risk Management Indicator report, conducted by Wolters Kluwer Financial Services.

According to the report, U.S. credit unions and banks specifically point to the Dodd-Frank Act and the associated HMDA data collection requirements as among their chief concerns. The new data collected will unleash a flood of additional public scrutiny of mortgage lending. And that development, by extension, will likely generate a new level of criticism of the mortgage industry, including credit unions, from those interpreting the newly available data.

It is clear from its recent enforcement actions and guidance that the CFPB holds accurate HMDA data as central to fair lending compliance and its ability to enforce fair lending laws. Inaccurate HMDA data will only serve to mislead the public and will not be tolerated. That said, the additional data, however accurately reported, will be an insufficient basis on which to ground definitive conclusions about discrimination on a prohibited basis. But, the data will generate more room for error as it gets interpreted – or misinterpreted – by regulators, analysts, and the public.

Tim Burniston EVP Wolters Kluwer Talks HMDAStay tuned for part 2 of this series to get additional insights about HMDA compliance and technology challenges and a list of key tips you can use to help prepare your credit union for these changes. Get a sneak peak of the tips by watching Tim Burniston, Executive VP at Wolters Kluwer highlight the HMDA changes in the short video, New HMDA Fields Coming – Are You Ready?

Wolters Kluwer Financial ServicesWolters Kluwer Financial Services is NAFCU Services Preferred Partner for consumer and member business lending and deposit services. For more information on Wolters Kluwer’s products and services, visit http://www.nafcu.org/wolterskluwer/

The Looming Impact of Dodd-Frank

Originally posted on CUInsight.com.

Guest post written by John Levonick, Chief Legal & Compliance Officer, Mortgage Cadence, LLC.

Mortgage Cadence is the NAFCU Services Preferred Partner for Mortgage Processing and Fulfillment Services.

Dodd-Frank impacts lenders in many ways. In the span of less than two years there are now many new rules that will have material impact on the conduct of all mortgage originators and assignees. Consider the following impending rules:

  • Qualified Mortgage (QM) / Ability to Repay (ATR)
  • LO Comp Rule (Reg. Z)
  • Appraisal Rules:
    • Joint Rule (TILA / Reg.Z – HPML)
    • Copy Rule (ECOA)
  • Escrow Rule
  • Know Before You Owe / Integrated Disclosures (TILA / RESPA)

While all are important, the Ability to Repay (ATR) elements of the Qualified Mortgage (QM) rules is first on our list. That’s where we’ll turn our attention this month.

The Ability to Repay requirements with the Qualified Mortgage

A QM is a new loan classification that represents how the lender has made a thorough assessment of, and has fully documented, a borrower’s ability to repay their covered loan. Currently, Regulation Z, as amended by the Board of Governors of the Federal Reserve System in 2008, prohibits creditors from extending Higher-Priced Mortgage Loans (HPML) without regard for the consumer’s ability to repay. The ATR rule extends application of this requirement to all loans secured by dwellings, not just HPMLs. Also of note, this final rule establishes a Safe Harbor that contains a “presumption of compliance” with the ATR requirement for non-HPML QMs. While the ATR rule does not specify any particular underwriting model, lenders must consider and validate, at a minimum, 8 discrete underwriting factors:

Read more

Commit to Success

Originally posted on Vantiv’s Blog.

Guest post written by Bob Long, Senior Vice President, Vantiv.

Vantiv is the NAFCU Services Preferred Partner for ATM, Debit Card & Gateway Processing; Credit Card Processing & Servicing; Merchant Services.

Many factors over the past few decades have driven credit and debit to be ubiquitous payment types today. But one thing is for sure: debit and credit cards did not grow by themselves. It took a commitment by issuers, acquirers, consumers and merchants to make the life-cycle of the card transaction work.

Through my experience, I’ve found that the word “commitment” summarizes those member financial institutions that move from good to great. This is best accomplished through a focus in three important areas:

Management Commitment: The management of your card program requires the proper resources and knowledge. Balancing risk, measuring growth, equating the increased non-interest income with card usage, focusing on growing the yield of your revolving balances – this all takes time. Seek out ways to take the complexity out of your credit program. Unsecured lending can be complex enough, and when you tie underwriting methodologies to multiple card product types, it gets even more complex. Use the resources of your credit union with those of your processing partner and commit to a collaborative, consultative approach.

Read more