Independent Banker - August 2017 - 96

Risks & Rules
members of the military, immigrants,
and seniors and retirees who do not
rely heavily on credit.
Mobile payment options like
Google Wallet and Apple Pay are also
driving the shift to alternative data.
At the same time, powerful datagathering
and analytical tools now
allow fi nancial companies to create
" We have always based
our lending decisions not
just on credit scores. We
look at the whole picture
and base our decision on
common sense as best
we can while staying
within regulations. "
-ANN SEISS, FREDERICK
COUNTY BANK
a more detailed profi le that can be
used not only to analyze credit risk
but also to provide fraud protection,
identity verifi cation and even manage
customer relationships.
" There is no denial that the
microchip and the digitalization
of banking is changing the face of
banking and, in my opinion, changing
underwriting, " says David Reiling,
CEO of St. Paul, Minn.-based Sunrise
Banks, which has assets of $800
million. " We are still trying to solve
the basic fi ve Cs of credit [character,
capacity, capital, collateral, conditions]
that have always been there, but we
are doing it in much different ways. "
Credit where it's due
Credit scores from FICO and
VantageScore are standard fare in
underwriting credit risk today. Those
credit scores are embedded in the
automated mortgage underwriting
engines for both Fannie Mae and
Freddie Mac. Many banks also use
credit scoring models in evaluating
other types of credit.
ICBA supports the FHFA and
CFPB's exploration of alternative
scoring methods to qualify
credit-invisible customers, notes
Ron Haynie, senior vice president
of mortgage fi nance policy for the
association. The caveat: ensuring
those alternative data tools are fully
vetted before being put in place. (See
sidebar, below.)
To some extent, the agencies' push
to expand the scope of alternative
data used in evaluating credit risk is
something many community banks
are already doing. " We have always
based our lending decisions not just
on credit scores, " says Ann Seiss, vice
president and retail lending offi cer
at Frederick County Bank, a $400
million-asset community bank based
in Frederick, Md. " We look at the
whole picture and base our decision
on common sense as best we can
while staying within regulations. "
For example, a customer might
come into the bank every Friday like
clockwork to deposit a paycheck, or
the bank may get a reference from a
landlord that says an individual pays
their rent on time every month. That
information provides insight into the
customer's behavior, lifestyle and
ability to pay.
" So community banks have always
looked at some forms of alternative
data, " Haynie says. " It just might
not be the same forms of alternative
data that people are advocating for
Industry coalition encourages transparency
As the Federal Housing Finance Agency (FHFA) continues
to assess potential updates to current credit score
models, ICBA is working to make sure those results don't
hold any surprises for the fi nancial services industry.
The ICBA, along with a coalition of other fi nancial trade
groups, sent a letter to the FHFA in
February requesting that industry
stakeholders be included in
" more open discussion " as
the agency evaluates new
and alternative credit scoring
models for possible use by
Ron Haynie
Fannie Mae and Freddie Mac in
underwriting mortgages. " Our
concern is that if you want
to use diff erent scoring
models, how robust
are they? What kind
of testing has been
done, and what's their
96 ICBA IndependentBanker August 2017
predictability compared to the FICO model? There has
been work done on that, but a lot of that data has not
been shared with the industry, and that is concerning, "
says Ron Haynie, senior vice president of mortgage
fi nance policy for ICBA.
The coalition letter voiced support for examining
other credit scoring models. The group also requested
a joint meeting with the opportunity to provide feedback
directly to FHFA staff , and advocated for a 24-month
implementation period once a fi nal decision regarding
any new or alternative credit score model is reached.
Since receiving the coalition letter, the FHFA has
continued to connect with ICBA and other trade groups.
Haynie hopes it will soon reach out to all groups simultaneously.
" This is something that aff ects the entire
industry, " he says. " So there needs to be some point
where you bring the entire industry together on this
issue, and not just diff erent groups individually. "
Read the letter here: tinyurl.com/FHFAletter
-Beth Mattson-Teig
http://www.qmags.com/clickthrough.asp?url=http://tinyurl.com/FHFAletter&id=20329&adid=P96E1
Independent Banker - August 2017

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