March 24, 2005
Federal Trade Commission
Office of the Secretary
Room H-159 (Annex Z)
600 Pennsylvania Ave., NW
Washington, DC 20580
RE: FACT Act Scores Study
Dear Sir or Madam,
I am writing in response to your solicitation for comments on the use and impact of credit scores.
Although my comments are written as a private citizen, my professional experience includes over
20 years in various positions in the financial services and mortgage banking industry with over 14
years dedicated to regulatory compliance and risk management. Over the course of my career, I
have witnessed an evolutionary transformation in the credit industry largely influenced by the
advent of credit scores and the credit reporting industry as a whole, in both the origination and
servicing sectors. The result of these changes has been both positive and negative.
Use of Credit Scores in Automated Underwriting. In the consumer and residential mortgage
industry, automated underwriting is becoming the norm and is gaining momentum in the
commercial market as well. Scoring models are built into automated decision engines for
borrower qualification, product-fit, and pricing. Conversely, traditional manual underwriting is
becoming a thing of the past and is quickly being replaced by these decision-engines in even the
smallest of institutions to meet the competitive demand for instant response and loan production
volume. Although automated underwriting using predictive scoring models has greatly increased
efficiency and profitability, there remains a question as to whether any of the savings has been
passed on to the consumer.
Impact in Sub Prime Mortgage Market. Low-doc and no-doc loan programs in the sub-prime
residential mortgage market are widespread. Meaning, borrower’s are instantly qualified and
priced into the appropriate product based on two primary numerical factors: a tri-merged FICO
score and a loan-to-value ratio.
There is often no documentation or verification of the borrower’s i